Choosing A High Interest Home For Your Savings
If you're fortunate enough to have some surplus funds, you'll obviously be wanting to make the money work for you, earning you a return rather than just sitting gathering dust. One of the ways of maximizing the return would be to invest in the stockmarket, but this carries a level of risk which not everyone is comfortable with.
Because of this, savings accounts of various types are popular places to keep extra cash, and while the potential returns aren't as high, the level of risk is virtually non-existent.
So how can you decide which kind of account to open? The first thing to look at is obviously the interest rate your money will earn, but there are other factors that you should take into account too when making your decision.
Direct or High Street?
This is the most basic choice to make, and basically comes down to a choice of higher service levels or higher profits. A high street account will let you deposit cash and withdraw cash directly, and you can speak to someone face to face if you need to. Direct banking will generally offer you a better interest rate though, at the cost of having to deal with the bank online, by telephone, or by post.
In this era of online banking facilities and cash machine access to accounts, the direct option is often the best choice, especially for savings where you probably don't need to use the account as regularly as you would with a current account, for example.
Accessing Your Money
A lot of savings accounts place some kind of restriction on how you can withdraw funds. Some require you to lock up the money for a fixed number of years (generally known as bonds), while others require a notice period of 30, 60 or even 90 days before you can make a withdrawal.
Of course, the money is still yours and you can get it at any time if you need to, but breaking the access restrictions will incur a loss of interest earnings.
So-called easy access savings accounts place no restrictions at all on how and when you can withdraw funds.
The more restrictive the access, the better the interest rate will tend to be, so you need to weigh up whether you're likely to need to get hold of the funds quickly, and make your decision accordingly.
Another consideration relating to withdrawals is whether you need a cash card, or whether you're happy to transfer money using online or telephone facilities. The choice here will rarely have a major impact on the interest you'll earn on an easy-access account.
Interest Payment
Your savings account will generally pay interest either once a year on a set date, or on a monthly basis. Accounts with monthly payment may feature a slightly lower headline interest rate, but offer the opportunity of exploiting compound interest (the earning of interest on interest payments). In practice, the banks will have calculated the rates they offer to minimise the overall difference between monthly and annual interest.
Minimum Deposits
Some accounts require a minimum regular deposit to be made every month, or you risk losing the interest you've earned. These accounts are usually known as something like a 'regular saver' account, and are more suitable for putting a set amount away every month rather than earning money on savings you've already built up.
Maximum Balances
Finally, some accounts with attention-grabbing rates of interest of 8% or even greater may not be as profitable as they at first appear, as they impose a maximum balance above which interest will only be paid at a much less impressive rate. With these accounts, the actual amount of interest you can accrue may be actually quite limited in comparison with a lower-rate account with a much higher interest-paying balance allowance.
