Savings Accounts

The rate of interest can change at any time, with little or no warning. While the interest rate might move broadly inline with the Bank of England Base Rate, currently 0.10%, you can't be sure of this unless your account has an explicit guarantee.

Beware, some rates include 'special offers' such as temporary bonuses, or start with a high rate that falls by the wayside over time (see 'marketing tricks' below), so it's important to keep your eye on the ball.

Some variable rate accounts require you give notice, often seven days or more, when you want to withdraw money. In general these pay higher rates of interest than accounts with easy access, but 'best buy' easy access accounts tend to pay rates as good as (if not better than) most notice accounts.

These accounts pay a fixed rate of interest for a fixed period of time, usually between one and five years. Withdrawing your money before the end of the fixed period often incurs a penalty, so you need to be comfortable tying up your cash when you take this route.

Banks and building societies attract a lot of new customers when their accounts appear in the 'best buy' savings tables featured in many newspapers and financial websites. Adding an 'introductory', i.e. temporary, bonus rate to an account is an often used tactic to achieve this.

The Trustus Bank offers an introductory bonus of 1.50% p.a. for six months on its 'BigSaver' account which normally pays 0.10% gross p.a.

Over the first year you'll receive 1.60% for six months falling to 0.10% for the following six months (assuming the interest rate itself doesn't change), equal to 0.85% over the whole year.

Introductory bonuses are great if you move your elsewhere (if need be) to a more competitive rate when the bonus expires, but many savers don't.

There are a few monthly saving accounts around that pay high interest rates of 4%-5% or more fixed for a year. While good, they're not as amazing as they sound because you're limited on how much you can save each month and they usually prohibit withdrawals.

The TopSave Bank offers 1.00% gross p.a. fixed for one year on its 'SuperSaver' account. You can save between £25 - £250 each month and at the end of a year the money is automatically transferred to it's 'PaybackTime' account paying 0.05%.

Even if you manage to save £250 each month your total interest over the year, before tax, would be £16. Nice, but maybe not as much as you might have thought.

By limiting the amount you can save and only allowing a monthly saving, the banks severely restrict the amount of interest you can earn at this rate. When the regular saver account matures your money will usually be shifted to another account in the provider's range paying a far less exciting rate of interest, the the hope you'll leave it there and the bank or building society will start to make a profit.

Take advantage of these accounts by all means, but be prepared to move elsewhere once the bonus period ends.

Another strategy providers use to grace the 'best buy' tables is to offer a high rate of interest knowing full well they'll gradually reduce its competitiveness over time, to the point it's a nice earner for them, not you.

This happens time and time again and, let's be honest, who can blame the banks and building societies for trying given most savers will be too lazy to move?

Some newer accounts offer guarantees linked to the Bank of England Base Rate, e.g. they'll pay you at least Base Rate during the first year or two, which is a useful innovation as it reduces the likelihood you'll get fleeced if you neglect the account, at least for a while.

Some accounts limit the number of withdrawals you can make each year while others don't pay interest during the month you make a withdrawal. Both could be bad news, especially if you have a large sum of money saved.