Are High Interest Savings Accounts The Best Option?
Everyone wants to get the best return on their money, but have you ever wondered why some savings accounts are able to offer much better interest rates than their competitors? Many people will barely hesitate before transferring their savings from a bank account that is offering little interest to one with a more attractive interest rate, especially at a time when interest rates in general are not as high as they were previously. You may think that you are getting a great deal, but is this really the case?
Fixed Rate Savings Accounts
Many savings accounts offer impressive interest rates because you are required to keep your money "locked away" for a set period of time. During this time, you will be penalized for withdrawing any of your money before the end of the fixed rate period. In some cases, you will not be able to access the money at all during the fixed rate period. This type of savings account is becoming increasingly popular as it guarantees that the interest rate will not fall while your money is in the account. This option is only really suitable for those who will not need to gain access to their money for some time.
These are often introduced to entice new customers. Typically, the bank will offer an initial interest rate that is much higher than the average interest rate offered by their competitors. Once you have opened an account and transferred money into it, you will often find that this initial interest rate dramatically decreases to one that is on a par with other banks. It is not uncommon for the interest rate to become lower than this. This in itself is not a huge problem as you can transfer the money into a savings account that has a better interest rate when the introductory bonus period ends, but it is something to consider before opening one of these savings account. If you forget to transfer the money when the bonus period ends, you will quickly find yourself with a very poor return on your money.
Some savings accounts will penalize you for making withdrawals during the course of a year. For example, you may only be able to make one or two withdrawals per year. Alternatively, you may be able to make unlimited withdrawals, but you may then receive no interest for any month in which you withdraw money from the account. If you have relatively substantial savings in the account, this can have quite a significant effect on the progression of your savings.
Keeping Your Money Safe
It is recommended that you do not keep all of your savings with the same financial institution, especially if you have relatively large savings. If one bank gets into financial trouble, it is less likely that you will lose your money if it has been spread around two or more banks. If possible, try to spread your money around banks that are not part of the same financial institution to increase the chances of keeping your money safe.