Opening a savings account these days is normally a straight forward process, just go online and the whole process can be completed in minutes. However, not all savings accounts are the same, as well as differences in interest rates, there are number of other factors (as well as hidden traps in the terms and conditions) that you need to check before you chose a new savings account. Here's a list of what to check before you commit your money:
1. Interest rate
Many accounts offer a high initial rate but this reduces after a period of time, typically 6 months or 1 year, often referred to as a 'teaser rate'. The initial higher interest rate may look a good deal but you need to make sure that the base interest rate (after the offer period ends) remains competitive. Also watch out for tiered interest rates where the bank vary the amount of interest they pay based on how much is in your account. Some sneaky institutions will even reduce your interest rate if you go above a certain amount.
2. Fixed rate or variable
Some savings accounts offer a fixed interest rate for a period of time others offer rates that are variable and could be changed at any time. Fixed rate accounts normally require you to tie up your money for a period of time, the longer the time period the higher the rate. If you need to get access to your money in this 'tie-in' period then a penalty will be applied normally a reduction or loss of the interest already earned.
3. Minimum and maximum investment limits
All savings accounts will have a minimum and maximum investment amount. Most accounts can be opened for a little as £1 but accounts offering the best rates often have a minimum amount of £5,000 or even £10,000.
4. Access to your savings
Not all savings accounts provide instant access to your money and you may need to give 60 days or even 120 days notice prior to making a withdrawal. Although some accounts appear to be instant access you may be limited to a certain number of withdrawals in a year, so read all the terms & conditions carefully. In some instances, if you fall foul of the terms and conditions you could actually get back less money than you originally put in.
5. Managing your account
Once your savings account is open you will need to keep an eye on your cash and maybe withdraw money or add to your savings from time to time. Most savings accounts offer a variety of ways to manage your money - online, branch, telephone - but some offer an 'in branch' only service which can be very inconvenient. Check that you are happy with how you can manage the account.
One of the main reasons for putting your cash in a savings account, rather than investing in the stock market, is security. Check whether the deposits with the bank or building society in question are covered under the Financial Services Compensation Scheme (FSCS). If they are then 100% of the first £85,000 you have in a savings account (£170,000 on a jointly held account) is protected.
7. Compatibility with your other accounts
You need to be aware that the aforementioned FSCS limit is per banking licence and many banking brands share the same licence. Check here before opening an account to see which brands shares licences and make sure that all your savings, if over £85,000 in total, are protected.