Having an interest-earning savings account is an excellent way to manage your cash flow, afford major purchases debt free and have reserves for a rainy day. Find out how to make the most of your savings.
Savings accounts are wonderful tools to help you save toward a goal, establish an emergency fund, or keep cash handy for unexpected expenses. Comparing savings accounts is a good way to make sure you find a high-interest savings account, as well as other factors that might matter to you, like electronic access, debit card access, or automatic monthly transfers.
Banks, of course, are always looking to attract new customers, and introductory interest rates are one way they do that. Just as credit cards may offer zero-percent rates to bring in new customers, banks offer higher-than-normal interest rates for a specific amount of time. When comparing savings accounts, this is one thing to take into consideration, but not the only thing.
Assuming you keep the account for a while, the ongoing interest rate will actually be more important in the long run than the initial interest rate. If on the other hand, you have a large lump sum cash investment, such as a home deposit, that you know you’ll be using within six months or so then you may be able to make use of the high introduction rates.
Some of the best long term savings accounts do have opening offers but others use the offers to pull you in but have downsides hidden in the small print. Some banks may require that you keep opening funds in the account for a certain amount of time in order to avoid penalties. If you withdraw before the specified time period is up, you’ll pay for it. In some cases, the penalty amount can more than negate the interest you earned.
Some accounts may be assessed fees, either to open, to close, or on an ongoing basis. Again, these must be disclosed, but they’re usually in the fine print. Especially if you choose an online high-interest account, you’ll want to think carefully if there are fees involved. One of the main advantages of online accounts is low or no fees since the bank doesn’t have to maintain brick-and-mortar branches. If you find the account with the highest rates has it’s benefits countered by high fees then you might want to keep looking.
Another thing to look for is hidden interest penalties in the month you withdraw your funds. These fees are often not noticed in the small print but can have a significant impact on the real return you make on your investment. Getting less than you thought could put a crimp in your plans.
Sometimes, in order to get an advertised rate, you need to deposit a fairly high minimum. This can be $10,000 or more, in some cases. The minimum deposit amount can be combined with an early withdrawal penalty, turning high-interest savings account effectively into a short-term certificate of deposit. Make sure an account with these restrictions will serve your needs before signing up and sending your money.
High-interest saving accounts are a great tool whether you make use of an online account or something offered by your regular bank. Just be sure you read all the information about the account before you sign up, and know about any dates for withdrawal and any fees that might be associated with the account, either on a one-time basis or on an ongoing basis.