Don’t fall into any of these saving traps
It isn’t easy getting the most out of your savings, with restrictions and penalties waiting to trip you at every turn. And as we fall into a double-dip recession, it’s even more important to avoid these saving traps.
Things are still pretty tough for those of us still able to save money at the moment. The base rate has been stagnant at 0.5% for more than three years, making it a challenge to get a decent return on your cash.
You’d have thought that, in this situation, providers would make sure their products are as straightforward and transparent as possible. However, we’ve found that this isn’t always the case.
The bonus culture
There’s no problem in companies offering an attractive 12-month bonus on instant access accounts, as long you remember to switch products when the bonus drops off. The Halifax Online Saver is offering a rate of 2.8%, but 2.7% of this (or 96% of the overall rate) is made up of a 12-month bonus. The underlying rate is actually just a paltry 0.1%.
Action: If you opt for a savings account with a bonus, make note of its expiry date and switch accounts when the time comes.
Instant access accounts, by their very nature, should allow you to put money in and take it out when you like. However, we found that some accounts, notably the Barclays e-savings Reward and Nationwide BS MySave Online Plus, limit the number of withdrawals you can make and charge interest or a fee if you exceed the limit.
Action: Check the terms and conditions of instant access accounts so you don’t end up sacrificing interest if you make a withdrawal.
Penalties and restrictions
If you opt for a fixed-term, fixed-rate bond for up to five years, you’ll need to be sure that you won’t need to withdraw any of the money. If you do, you’ll face stiff penalties and may lose some of your capital. Saffron Building Society’s one-year fixed-rate bond charges 180 days’ interest if you need early access.
Action: Consider splitting your cash between instant access and fixed-term accounts in case you need money in an emergency – that way you’ll avoid penalties.
There could also be an unwelcome surprise when you come to the end of your fixed term. Some accounts ‘tip’ you into a poor-paying instant access account, or ‘roll’ you into another fixed-rate deal if you don’t inform them otherwise. Ending up in an instant access account paying just 0.1% or 0.2% is fairly common, although your bank or building society will write to you to inform you of the fact.
Action: Keep a note of the maturity date of your fixed-rate accounts and start researching the best new home for your savings up to a month beforehand.
Flexibility or complexity?
Banks will argue that they’re reacting to consumer demand and that most of the features their accounts offer are designed with the average saver in mind. They’ll also argue that the very best rates will always come with restrictions.
Do you accept this or are your saving account’s terms and conditions just another way for providers to catch you out and claw back some of your hard-earned interest? And have you fallen into any of these saving traps?
Post a Comment
Your email is never published nor shared. Required fields are marked