Read the Small Print and Spot the Savings Traps

With more and more savings accounts to choose from, providers are working harder to hang on to customers. Savings accounts can be so littered with small print, so that it’s difficult to tell exactly what you can and can’t do with an account. If you don’t want to suffer from the small print, here are a few tips to keep in mind.

Keep your Money Safe

Make sure that your savings are secure. Until last year it seemed almost unthinkable that a bank could go bust. However, the credit crunch and the collapse of Northern Rock last year made savers realise that putting your money in a bank is no longer the risk-free investment it once was. Despite the increased concern, your savings should be safe in any UK financial institution. The Financial Services Compensation Scheme (FSCS) protects all savings deposits in an individual account, up to a limit of £50,000 per bank. So, if you have more than £50,000 to invest, you should try to spread it across as many institutions as you need to, to make sure you’re covered.

Bear in mind that some institutions trade using a number of different bank names (for example, Halifax, Bank of Scotland, Intelligent Finance and Birmingham Midshires are all part of the HBOS banking group). If you have separate accounts with the same provider, or you have accounts with different members of the same banking group, you will only be covered up to the £50,000 single institution limit.

Avoid Deals that Look Too Good to be True

‘Best buy’ tables and comparison websites are useful tools when researching savings products, but they won’t tell the whole story.

Many UK investors were attracted to the Iceland-based Internet bank Icesave because it regularly appeared at the top of newspaper ‘best buy’ tables with the highest savings rates. The problem was that Icesave did not have enough capital to sustain their business model, and the bank had to be taken over by the Icelandic government. Several local authorities and charities invested millions of pounds in Icesave, and they are still in the middle of the compensation process, with no access to their money.

Introductory Rates Won’t Last Forever

Introductory or bonus interest rates are used to attract investors, but they often cause confusion. Introductory periods often only last between six and twelve months. Once the bonus period is up, the likelihood is that you will be left with a rate that’s a lot less competitive. Account providers usually don’t inform customers when the introductory rate has expired, in the hope that you’ll either not notice the drop in interest, or that you won’t make the effort to switch your money. The best way to beat them at their own game is to make a note of when the introductory rate will finish, and then look to switch your account as soon as the rate expires.

Watch Out for Withdrawal Penalties

When it comes to the small print on savings products, some terms and conditions are quite reasonable. For example, if you agree to take out a savings product with a fixed term, or agreed notice period, then if you choose to take your money out before the term expires or notice period ends, then you should expect to pay some associated costs.

The most likely penalty will be a lost of interest from when you take your money out to the fixed term termination date. However, it depends on the provider and some banks will close your account if you make too many withdrawals within a certain period. Read the terms of your account and decide if you can keep your money in for as long as the bank asks you to. If you think that you might need to dip into your savings now and then, you might be better off with an instant access account instead of a fixed term account.

Now more than ever, banks need to find savers to keep their businesses profitable. By being aware of the traps banks use to keep your custom, you can make sure that you don’t end up paying them for their services any more than you absolutely have to.