When looking for the best place to put your hard-earned money, there are a lot of factors to consider. With a large variety of savings accounts available on the market, it can be difficult to find the one that will best suit your needs.
Plot your path towards financial freedom with our Hero’s Journey tool!
MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.
This tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.
But don’t worry, we are here to help. Here are our top things to look out for when you are comparing savings accounts.
Interest rates vs inflation
One of the first things to consider when comparing savings accounts is the interest rate on offer and, crucially, whether this is higher than the rate of inflation.
Inflation is the rate at which prices of goods and services increase, and it reduces the value of your money over time. Because of this, it’s ideal for your savings interest rate to be above the rate of inflation, otherwise your money will lose its spending power.
Basically, the money you have saved will be worth less over time if your interest rate is below the rate of inflation, because when you come to withdraw it and use it, the prices of goods and services will have increased by more than the interest your savings have earned.
Introductory bonus rates
Another key feature to look at when comparing savings accounts is whether or not the headline interest rate includes an introductory bonus rate. For example, a savings account might have an interest rate of 1.75%, but 1% of that is a bonus rate which will expire after 12 months.
Introductory bonus rates can be a good way to access some higher interest rates on the market. However you will need to be quite hands on with your savings and happy to switch to find the best deals in order to feel the true advantage.
Once any introductory bonus rate period ends, it’s likely that the interest rate will drop below that of inflation, meaning that unless you switch to a new introductory rate your savings will lose value.
If you don’t think that’s you, maybe consider an account that offers a more stable interest rate in the long term – even if it is slightly lower than what’s on offer with an introductory bonus rate account.
The level of access you have to your money could also be a deciding factor when choosing a savings account. Do you need to be able to access it quickly, or do you have a lump sum that you can put away for a year or more?
Typically, higher interest rates are reserved for savings products that limit access to your money, such as fixed-rate bonds or notice accounts. These will typically only allow you to make a set number of withdrawals over the term of the account before you could face a penalty charge.
However, there are instant access savings accounts available that will allow you to withdraw however much you like whenever you like. The main downside of an account like this is that the interest rate is likely to be a bit lower.
How much money you have to save can also dictate the type of savings product you should consider. Some accounts require a minimum deposit, while others have a maximum level of investment. As with any financial product, it is best to shop around and find they type of account that best suits your savings habits.
You should also consider how regularly you are planning to save. Are you going to put a little away each month, or are you just looking for a home for a large lump sum? If the former, then a regular savings product – where you can make a monthly deposit of up to £500 – may suit you. If the latter, maybe consider a fixed-term bond which may have a minimum investment level but will provide you with a higher interest rate.
Are you happy to do all your banking online? Or would you prefer to be able to talk to someone face to face? How your account is managed can also be a deciding factor when choosing a savings product.
Sometimes, products with online access only will offer a slightly more beneficial rate than those that can also be managed in branch.
Have a look when you are comparing products and consider whether this is something that would suit how you conduct your finances, and therefore whether it could be a good idea in order to access the best possible rate.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.