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Improve your savings
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10 steps to a better savings account
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If you’re looking to open your first savings account, or want to switch to a more profitable one, there are a few things you should take into consideration before you sign on the dotted line, to not only make sure that your money works as hard as you do, but also that you get an account to suit your needs. Follow our 10 steps and you can’t go wrong.
1. Introductory offers
Many banks draw you in with attractive rates but few keep them up. While there’s nothing to prevent you from switching to a better rate with a different provider, banks count on people staying not switching and putting up with a poor rate - which is exactly what most people do.
Make sure you know exactly when your introductory offer runs out, and set some sort of reminder to let you know that its time to shop around. Also, the best deals invariably go to new customers so by switching again, you’ll be able to take advantage of another great offer.
2. Penalties
Make sure you read the small print so you know how your savings account works. Even if you go for an account where you’re allowed to make withdrawals as much as you want, you may well be penalised for taking money out. Both HSBC and First Plus savings accounts work in this way, and HSBS’s terms and conditions state: “No interest is payable on the full balance in any calendar month in which a withdrawal is made.”
3. A long-term commitment
Depositing into a certain savings accounts will mean that your money is tied up over the long term, so make sure that you’re comfortable with this if it’s the case with your chosen account. However, if you’re a commitment-phobe, you might want to look elsewhere.
4. Past performance
In recent research, only three out of 11 best buy saving accounts from 2002 were found to have matched or exceeded base rate increases over the past five years. Many banks are slow to pass on Bank of England base rate increases so you might want to look at how consistently they have performed, rather then just where they are in today’s best buy table.
5. Minimum balance
Some accounts have a minimum deposit amount. This might be only £1 at some banks but on other accounts it could be more than £1,000 so bear that in mind when looking for your ideal account. The interest will also drop on some accounts if the balance falls below a certain point so look out for any similar clauses.
6. Ease of access
Some savings accounts require a minimum amount of notice before they will release funds. It used to be the case that agreeing to give the bank a month’s notice would get you a higher rate of interest but there’s no reason to make this kind of sacrifice today. Just be aware that you could forfeit that month’s interest by making a withdrawal.
7. Monthly or annual interest
There are benefits to both types of interest payments. If you have your interest paid into your account each month you’ll be able to earn interest on your interest. However, if you agree to take your interest payment only once a year you’ll probably get a higher rate which could work out even better, and it will arrive in a lump sum too.
8. Safe but low
Savings accounts work well for steady, slow savers, but if you’ve built up large sums, you might want to consider investing. While investing in shares and the stock market carries a greater degree of risk, the possible returns are also much better.
Click here to go to our Shares and Investments page.
9. Confusing rates
Banks often quote different rates of interest, such as a monthly rate, or the maximum rate available, to attract customers. But these varying quotes can also be confusing so make sure that you always compare the Annual Equivalent Rate (AER) which represents the true rate that you’ll receive. All banks have to make this rate clearly known and it’s the best way to compare accounts.
10. Switch
Banks like to give the impression that it’s difficult to move your money to a new savings account but it’s really a very simple process that will get you a more suitable account as well as a great rate on all your hard earned cash.
Click here to Compare Savings Accounts.
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