Savings account Guides

Super-size your savings

Updated: Friday 14 October, 2011

By Martin Fagan

Are you getting the best savings interest rate? We show you how to boost your returns.

Savings accounts provide a safe place to keep your cash either for a rainy day or for that special something. But the sheer number of accounts available - in banks and building societies as well as on the internet can be quite overwhelming and savings accounts can be confusing, with catches and clauses that could and up costing you cash.

When choosing a savings account, don’t just be sucked in by the first attractive offer you come across. Use our 10-point guide to get the account that’s right for you and which will enable you to get the most from your savings.

• 1. Easy access accounts
• 2. Notice accounts
• 3. Fixed-term accounts
• 4. Regular saver accounts
• 5. Introductory deals
• 6. Regularity of interest payments
• 7. Minimum balances
• 8. Protection
• 9. Switching
• 10. Finally

1. Easy access accounts

These types of savings accounts let you take your money out whenever you need it without having to give notice or incurring a penalty. With most easy access accounts, you can begin by investing as little as £1, making them great for first-time savers who might need fast access to their money.

However, the rates offered are usually less than you would receive with more rigid terms. Your rate may also be linked to the Bank of England base rate, which means that if it goes up, your interest will increase, but it will also decrease if the base rate goes down - so keep an eye on what’s happening in your account.

Despite having variable interest rates, some accounts also give a guarantee to stay at a competitive level. However, it’s not unknown for banks to surreptitiously drop the rate without telling savers, so keep an eye out to ensure you’re getting the rate you signed up for.

Compare savings accounts and read the terms and conditions for more info on any account you’re interested in.

2. Notice accounts

With some savings accounts you have to provide the bank with notice of when you want to withdraw some money. This period can range from seven days, up to 120 days, though the typical amount of time is 30 to 60 days.

These accounts usually offer higher rates of interest but often require larger initial deposits than easy access accounts, and are obviously less flexible. However, the rigidity of a notice account can be of benefit to people who tend to regularly dip into their savings as the penalty discourages them.

If you do dip into your savings, you'll usually lose interest on the amount you took out, for the length of notice required on your account, but this varies from one to another.

3. Fixed-term accounts

These accounts offer a fixed interest rate, protecting you from losing out if the base rate drops. But this also means you won’t benefit from any rate increases during your fixed term either.

Fixed term accounts often have a minimum balance requirement, and if your savings drop below this margin your interest rate could be lowered. However, if you can afford to lock your money away for a certain amount of time and the Bank of England base rate falls, these accounts can be great.

4. Regular saver accounts

These accounts require you to make deposits, usually of a set amount, into the account each month. While this means your savings will grow quickly, these accounts typically have the most restrictions attached, and often use flashy bonuses or introductory offers to attract potential savers.

However, they usually come with very attractive interest rates.

Usually you can only make a fixed number of withdrawals - and sometimes none at all. You cannot miss any deposits or your interest rate will drop, and most providers don’t allow large lump sums to be invested.

5. Introductory deals

Once you have chosen the type of savings account that you want, you need to narrow down your search by looking at the individual terms and conditions applicable to each account. Here are some of the things to look out for:

• Some of the rates advertised by banks look especially good because they include an introductory offer. Look at the small print and see how long the offer lasts - most are between six and 12 months.
• You might be planning on simply transferring your savings once the introductory offer has expired, but some accounts have clauses to prevent you from doing this. For example, you might get a great rate for the first six months, but the interest might not be paid until the account has matured, which could take another six months. If you move it sooner, your rate will drop.
• Make sure you read all the small print, and work out if you could make more in interest by taking a slightly lower rate that lasts longer.
• Look out for exit charges, as some banks have begun to introduce them to prevent people constantly switching to get the best new deal.

6. Regularity of interest payments

You need to know when the interest will be paid into your account, and also when it begins to accumulate, as this can make a real difference to the account you choose.

Interest will be paid into your account either monthly or yearly. You generally get a better rate if you have it paid in yearly, but this rate can drop if you make more than a specified number of withdrawals or move your money to another account before the year is up.

You should also find out when the interest begins to add up. Many accounts start to add it from the day that your money is paid in, but some others only count your interest up monthly, so you will be losing out with one like this.

This kind of information is usually only found in the small print of the terms and conditions section of the account information - the part that many people skip. As boring as it may seem, it is important to read this section, as that’s where you’ll find out about any extra benefits and charges.

7. Minimum balances

Many accounts have a minimum balance condition, which means that your interest goes down if your savings drop below the agreed level. Before you sign-up for an account like this, you need to be fairly sure you will be able to keep the minimum balance invested.

8. Protection

As long as your money is in a UK regulated bank or building society, it’s covered by the Financial Services Compensation Scheme (FSCS) (www.fscs.org.uk). Your savings are protected as long as you don’t have more than £50,000 with one financial institution. See our guide to safe savings for more information.

9. Switching

If you opened a savings account because of a great introductory offer which is no longer so great, then you should consider moving your money.

Use a best buy table to compare offers, but bear in mind the points in this guide. And always double-check the terms and conditions on your current savings account, and the one that you want to switch to. Some accounts have penalties for moving your savings, or will reduce the rate at which your yearly interest is paid if the account hasn’t matured.

10. And Finally

You should always be sure to pay off your debts before you begin to save, as the interest you pay to credit card and loan companies will be far greater than anything you earn on your savings.

Also, draw up a budget of your finances and don’t try to save more than you can afford. There’s no point in putting away so much that you have to take it out again to pay your rent.

Deciding how you will use your account is essential to finding one that suits your needs and works best for you, as is keeping yourself informed and up-to-date on any changes to the terms and conditions, or the rate paid on your account.

Finally, always remember to shop around. Some of the best deals and highest interest rates can be found online, so don’t be afraid to open an internet-only bank account - just be sure to go with a regulated provider.