Many of us leave our savings in rubbish accounts which pay next to nothing in interest. Often, people aren't even aware of what's going on – the banks appear to have developed a well rehearsed and highly profitable habit of luring people in with very attractive rates, based on bonuses, which nose-dive before too long, with minimal notifications. They gamble on the idea that once they've got you, they'll be able to keep you for at least long enough to make a few quid out of you.
Certainly, you'll be out of pocket if you don't keep on top of things. It's an old chestnut, sure, but you really do have to make your money work as hard for you as possible. We've long lived in a time when the price of pretty much everything is almost constantly on the rise and it's difficult to keep up. Remember, if your interest rate is less than the annual rate of inflation – the percentage, on average, that the things we all buy everyday is going up by – your money will technically be worth less and less until you do something about it.
The bonus game
The good thing is that there is something you can do about it, and that's play the banks at their own game with their bonuses.
Increasingly, the interest offered on saving accounts is made up of a low basic rate which is supplemented by a big bonus, either as an introductory offer lasting for a year or dependent on terms such as only withdrawing a certain amount of times in a year or keeping the account above set a level of funding. The difference can be dramatic. Accounts can offer just a miserly few fractions of a per cent as a basic rate with a bonus of as much as four or five per cent. The latter brings the rate up to a very respectable level which could even be a loss leader for the banks, given that the interest rates they are lending at are currently on the floor, with the Bank of England suggesting things are going to remain that way for some time to come.
Though it's usually just for a year, you can sometimes fix your money and your bonus rate for as much as five years at a time. The longer you're prepared to tie it down for, the bigger rate of interest you'll get, as a general rule of thumb. The amount of access you have to your cash, with the bonus still applicable, will also have an effect. If you break the terms you'll lose it completely. Ensure you know what you're going to need before you sign on the dotted line.
The bonus, however, will never carry on beyond the end of the agreed term automatically, or beyond the specified time when it's an introductory offer. At that point, your interest rate will sink to its minuscule basic rate. If you were lucky enough to have saved £10,000 and you left your money in an account paying you just a tenth of a per cent (and believe it, some will) you'll earn yourself the princely sum of ten whole English pounds in a year. Be careful what you spend it on.
But there's no need for this to be the case. When your term ends, your money will no longer be fixed where it is and you'll be free to pick it up and take it elsewhere. With open access accounts, you were never under any obligation to stay in the first place. Where money's involved, brand loyalty is of little value to you unless the bank has special deals in place for long serving customers. Unfortunately, the opposite is usually true – the banks value new blood and offer them the best deals, figuring that inertia will be enough to keep their current clientèle in place. The only way to win is to continually be the new kid in town yourself.
Make sure you keep thorough records close at hand and have a firm grasp on what's going to happen to your interest rate and when. As soon as you are no longer entitled to the initial bonus that enticed you in, scour the market and move on.
The regular racket
Regular savings accounts work in much the same way as the bonus game. They offer fantastic interest rates – up to eight per cent in some cases where you save a set amount of money every month. But don't take the headline rate as evidence of a job well done and file the papers away in the back of the bureau once you've set the wheels in motion. At the end of the term, the money you've saved plus the interest earned (calculated on a daily rate, you should note, which means that headline rate will not be what's applied to the final total balance) will be transferred to another account which, once again, will give you the square root of an obscenely low figure as a reward.
Make sure that the balance is transferred to a decent account, even if the regular savings are to continue. Don't be fooled into thinking the accounts are one and the same or are intrinsically linked. They are not. The regular savings rate applies to the money you save within the term and nothing more.
At the end of the day, why wouldn't you change if you can get more for your money? If your bank manager approached you in branch one day with a hand full of notes and few bits of shrapnel besides and told you to take it, no strings attached, since you deserve it, would you turn him down? It's no different when it comes to interest rates on your savings account – it either sits in the bank's pocket or yours. The offers are out there, it's your choice.
When you click here to compare savings account on Know Your Money, the red asterisks next to the interest rates indicate that there is a bonus involved.
Author: KYM Editor
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