5 things to look out for when opening your savings account
Whether you’re opening a savings account for the first time or looking for a new deal, you might want to bear in mind our top 5 things to watch out for before you sign up:
1. Decide how much access you want
Typically with savings accounts, the longer you can afford to put your money aside, the better the interest rate you’ll get. Fixed rate savings accounts have tended to provide higher rates on interest than instant access or easy access savings accounts. This effect has been somewhat reduced in recent years due to a record low base rate – but there can be other benefits to a fixed rate savings account. If you know you’ll be tempted to dip into your savings for no good reason, a fixed rate account could act as a deterrent.
2. Beware of introductory rates
Many savings accounts offer an attractively high interest rate at first glance – however, this is often an introductory rate, which is fixed for a set period of time after the account is opened. It can then drop steeply, so make sure that you make a note of the date that the introductory rate ends.
Banks use introductory bonus rates to attract new customers, relying on the fact that the majority of customers won’t switch after the bonus rate ends. If you switch to a savings account with a better rate of interest as soon as the bonus rate ends, you can take advantage of the high initial rate before moving to a new provider – perhaps with a similar introductory bonus deal.
3. Check for withdrawal restrictions
Don’t forget that some accounts marketed as ‘easy access’ might still limit the number of withdrawals you can make. For example, you could be restricted to a set number of withdrawals per year, or face losing interest in months where you take money from the account.
4. Consider whether you’re looking for income or growth
If you’re looking to earn income from your savings, you might want to pick an account that offers monthly interest payments, rather than annual payments. Of you’re looking for growth, you may be better off with an account that pays annual interest, benefitting from compound growth as you earn interest on previous interest payments.
5. Check that you’re protected
It’s very important to keep up to date with how your savings are protected, so that you can take action if necessary. With many UK savings providers, the first £85,000 held per person in is protected by the Financial Services Compensation Scheme (FSCS). If your bank is not protected in this way, it may be covered by an equivalent foreign scheme. It’s important to check what financial protection you are entitled to before you open an account.
However, you should bear in mind that the FSCS compensation limit of £85,000 applies per person, per bank. Therefore, if you have more than £85,000, it’s a good idea to spread it across several different banks. Remember, too, that some banking groups – for example, the RBS group, which includes high street banks NatWest and RBS – count as one institution for regulatory purposes.
Finally, make the most of your circumstances. Joint accounts are protected up to £170,000 so you can get away with saving more in one place without jeopardising your protection.
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