What to look for with a Savings Account

Savings accounts are numerous. It is hard to decide which one is best for you and your needs. This article should help direct your thoughts to the things that you should consider when choosing your savings account.

Why do you need a savings account

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As you will see in an upcoming series on Financial Products (starting next week!), one of the key financial products to have in your arsenal is a decent Savings Account.

A savings account is important because it is going to be the means by which you feed your other investments. For example, let us say that you wanted to invest in a particular structured product (explained in my forthcoming financial products series) that provided you with a decent return (with some risk) over the next 5 years. However, the financial adviser/ personal banker tells you that to invest in this particular structured product you are going to need a minimum of £1,500. Alternatively, you wanted to save up the money for a holiday.

For some people coming up with the money may take a little time. They would put aside money in their current account each month until they had the full amount. Since the money remains in their current account until they want to spend it, the individual is earning very little (or even no) interest on their money. The financial lingo here would state that this person is working for their money and not letting money work for them.

The obvious solution to this problem is to put the money into a savings account and earn a higher interest.

What should you look for in a savings account?

There are several important things to consider when searching for the ideal savings account:
  • Rate of Interest: Ideally you want the highest amount of interest available out there in the market. There is no point getting a savings account that pays a pittance. You want it to be worthwhile to put your hard earned cash aside. Ideally you want the rate to be at least a percentage point above the rate of inflation. This ensures that you are not losing money.
  • Ease of Access: There is no point having a savings account if you cannot access it when you need the money, or else there is a penalty on the rate of interest if you need to take your money out early. If you don't need the money for the next year then by all means lock your money away for 12 months in exchange for a higher rate of interest. Of course, if you need the money in a few months time then you'll want the luxury of immediate access to your savings. In which case, you want a savings account that satisfies this criteria.
  • Regularity of Savings: Do you want to put some money in a savings account every now and again? Could you commit to giving a set amount each(in return for a higher rate of interest)? Do you have a certain large lump sum that you can commit to a savings account? All these questions should be considered and will affect the type of savings account that's right for you.
  • Bonuses: Some savings accounts have bonus features that you may be interested in. For example some accounts may give you free travel insurance or a free rail card.

As you can see it is all very complicated finding the best account for you. To find out which account suits your needs best I advise that you compare savings accounts using online comparison and bank sites. Look out for my forthcoming Financial Products Series for more information on this and other types of Financial Instruments.

Readers, what are the important things that you look for in a savings account?

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1 comment

Anonymous said...

I like to look for all the points you stated but I also don't want to pay high fees or any for that matter. I've been with the same bank since moving to Canada and have never looked back. Paying $0 fees, comparable interest rates,and ease of use are top of my list. Cheers Mr.CBB