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Savings Guide
Beware of these savings account restrictions
Updated: Monday 19 March, 2012
By Martin Fagan
Choosing the right savings account can greatly improve the returns you receive, but you need to look beyond the headline interest rate.
It’s a good idea to compare savings accounts regularly to ensure you are getting the best rate on your hard-earned cash, and while interest rates are very important, it’s crucial to watch out for any restrictions too.
Just because an account has restrictions, doesn’t mean that it won’t suit you - it just depends on how you plan to use the account. For example, an account that applies penalties for withdrawals would be fine for someone who plans to lock up their cash for the long-term, but could seriously reduce returns for someone who needs regular access to their cash.
Taking time to look at the details of an account, and making sure you understand any restrictions that are imposed, will definitely help you choose the best account for you.
In this guide we show you what to look out for.
Savings restrictions to watch out for
Before opening any account, you should always have a good read through the small print, but here are some of the most common restrictions you should look out for:
- Access restrictions - Some savings accounts will ask for a minimum amount of notice before they will release funds - if you think you may need easy access to your cash, it would be wise to avoid these accounts.
- Withdrawal restrictions - Some savings accounts, even those which claim to be “instant access”, will limit the number of withdrawals you are allowed to make each month or year. Making additional withdrawals may result in your receiving a reduced amount of interest, or no interest at all, so consider this carefully if there’s a chance you’ll want to withdraw money.
- Balance restrictions - Most savings accounts will have a minimum deposit amount. This could be as little as £1, but could exceed £1,000 and is something to look out for when choosing an account. However, some accounts also have minimum balance requirements, so if your balance falls below a set amount, the interest rate will also drop. So only choose this type of account if you think you will be able to keep your balance above the set minimum.
- Deposit restrictions - Some savings accounts - specifically regular savings accounts - will require you to make a minimum deposit into your account each month. These accounts can be great for getting into the savings habit, but don’t open one unless you’re sure you will be able to make the monthly deposit. If you fail to do this, your interest rate may be reduced, the institution may surf you to a much less competitive savings account or the account may be closed altogether.
When choosing a savings account it’s also very important to find out whether the interest rate on offer includes an introductory bonus. If it does, then your rate is likely to dramatically drop after one year and you will need to be prepared to switch again.
Things to bear in mind
When choosing a savings account, making sure you’re aware of any potential restrictions will help you avoid nasty surprises later. Always read the small print and consider how the terms and conditions could affect your returns.
See our top 10 tips for getting the best savings rates for new ideas on where to find the juiciest interest rates and if you’re new to saving, make sure you check out our guide to getting in the savings habit.