Savings account Guides

10 steps to a better savings account

Updated: Tuesday 7 June, 2011

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Follow our top 10 steps to ensure you get the best possible returns on your hard-earned cash.

If you’re looking to open your first savings account, or want to switch to a more profitable deal, there are a few things you should take into consideration before you sign on the dotted line.

You need to make sure that your money works as hard as you do, and also that you get an account to suit your needs. Follow our 10 steps and you can’t go wrong.

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1. Make the most of 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's inertia, staying put, 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. Often, the best deals go to new customers so by switching again, you’ll be able to take advantage of another great offer.

2. Watch out for 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 as many withdrawals as you want, you may be penalised with a lower rate for each month you take cash out.

3. Think about a long-term commitment

Depositing into certain types of savings account will mean that your money is tied up over the long term so, make sure you’re comfortable with this before committing yourself to a fixed term account if it’s the case with this your chosen account. These accounts may offer attractive interest rates, but if you’re a commitment-phobe, you might want to look elsewhere.

4. Look at past performance

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 in the past, rather than just where they stand in today’s best buy table.

5. Consider the 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. On some accounts, if the balance falls below a certain point, the interest rate will also reduce, so look out for this and any other similar clauses.

6. Look at ease of access

Some savings accounts require a minimum amount of notice before they will release funds. Agreeing to give the bank a month’s notice could get you a higher rate of interest, but you might forfeit a month’s interest every time you make a withdrawal, for example.

7. Weigh up the benefits of monthly or annual interest

There are benefits to both types of interest payments, but the thing to consider is how disciplined you are. What you really need to think about is the Annual Equivalent Rate (AER).

The AER takes into account the frequency with which the product pays interest and how that interest compounds up (pays interest on interest). So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds more frequently and will have a higher AER.

However, if you agree to take your interest payment only once a year you’ll probably get a higher rate which could better suit your savings habits.

8. Is investing better for you?

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.

Read more on our shares and investments page.

9. Decipher 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 you always compare the Annual Equivalent Rate (AER) which represents the true rate you’ll receive. All banks have to make this rate clearly known and it’s the best way to compare accounts.

10. Switch now

Banks like to give the impression 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 better rate on all your hard earned cash.

However, if your savings are held in a cash ISA (Individual Savings Account), the transfer procedure is different. To find out how to switch cash ISA providers, read our guide.

Click here to Compare Savings Accounts.