Savings accounts can be riddled with tricks and traps that seem designed to catch you out. We show you how to avoid the most common pitfalls.
When looking for a place to save your money the last thing you want to encounter is tricky terms and conditions on withdrawing, transferring, or earning interest on that cash.
However the reality is that many savings accounts can come with a labyrinth of restrictions, making them hard to navigate.
Some of these restrictions will be made clear to you when you sign up for your account, but others might only be found with a magnifying glass in a booklet you can’t remember being given.
Here are our top tips to help you steer clear of the most common tricks on savings.
Can you access your savings?
The answer to this, if you’ve opted for an instant or easy access account, should be a categorical ‘yes’ – however many savings providers will still place restrictions on how you can access your money. You may be charged a fee for withdrawing money, regardless of how much you’re taking out.
For example you might want to withdraw £300 in cash and for it you’re charged a fee of £1, which may seem reasonable – but when you’re charged the same £1 just for withdrawing £5, accessing your money can become very expensive.
You may only be granted a set number of free withdrawals annually before a fee or penalty is applied. A penalty will often be in the form of a reduction in your interest for the month that you make a withdrawal. Your interest might even be reduced to zero after taking money from the account.
If you open a fixed rate savings account you may also experience heavy restrictions on your money. Many fixed-rate accounts will not permit any withdrawals or closure during the agreed account term.
So, if you anticipate that you may want to withdraw money from your savings, be sure to check the terms and conditions and choose an account that allows you free access to your money.
Are your savings boosted by a bonus?
Many savings accounts come with introductory bonus rates. This means that for a temporary period your savings will enjoy an elevated rate of interest. This can be a great way to give a real lift to the interest earned on your money, but there are a few things to watch out for.
You may not be made aware by your savings provider when exactly your introductory bonus will come to an end, and when your account will revert to the variable rate. Or, if you were told this at the outset, it’s possible it will have slipped your mind – meaning that without warning your interest could drop from a respectable rate to a dismal one. Therefore it’s important to note how long your bonus will last for when you open the account.
When your bonus period does come to an end, make sure to find a new place for your savings if your provider’s variable rate is uncompetitive.
Some advertised bonus rates are in fact liable to be dropped to a lower rate at any point upon opening your account, if the small-print states that it is variable. So it’s a good idea to deposit your savings in an account whose bonus rate is clearly fixed, at least for 6 months or so.
There may also be strict conditions for keeping your introductory bonus in place. For example, you may be able to enjoy a fixed bonus of 3% on your savings for 6 months, but if during that time you exceed the maximum amount of withdrawals or forget to deposit money regularly, that rate may drop to 0.75%. Therefore you should always check the terms and conditions behind the headline figures, and if they don’t suit you, look elsewhere for a home for your savings.
Have you maximised your ISA allowance?
ISAs (Independent Savings Accounts) are a very sensible place to put your savings, as they allow you to earn tax-free interest up to an allowance of £5,340. However there are also restrictions on money deposited in ISAs.
For example if you withdraw any money from your ISA it will automatically lose its tax-free status, and so it must always be transferred to a new account rather than withdrawn.
It’s also possible that you might be charged for transferring your ISA funds, so this is something to watch out for. What’s more, you can only pay into one Cash ISA during each tax year.
So if you are planning on taking advantage of your tax-free ISA allowance, be sure to check the terms and conditions before signing up.
Do you know what your interest rate is?
If you opened a savings account a while ago you may have known what the interest rate was then, but are you aware of how much your savings are earning now? When opening an account with a competitive rate it’s easy to move your money in and leave it there, but unless you are still within the fixed rate period of an account, it’s likely your savings are now accruing interest at a less competitive rate.
For this reason it’s important to check your rate regularly and keep an eye on its ups and downs, so that you know exactly how hard your savings are working. If your interest rate is dragging its heels, it’s a good time to look for a new savings account that will give you a better return on your money.
