They're instant access, but are they strings free? Here's a little bit of small print to beware of on your savings account.
If you withdraw money from ordinary savings accounts without giving considerable notice then you are penalised, usually with loss of interest and possibly a charge. Instant access accounts are different because they are about being able to withdraw money quickly without penalty.
Or so I thought! But if you make withdrawals from some instant accounts, you can lose out on interest.
Lost interest on instant access accounts after a withdrawal is made
Account | Gross rate | Withdrawal restriction |
|---|---|---|
5.25% | No interest paid that month | |
4.65% | No interest paid that month | |
HSBC Online Saver | 4.65% | No interest paid that month |
Cheltenham & | 5.00% | Lose 30 days' interest |
Britannia BS | 6.30% | Lose 180 days' interest* |
Source: Moneyfacts
*Unless used for a Britannia mortgage
I decided to show the gross rate of interest in the table, as in some ways that is more suitable if you withdraw money regularly from your savings account. Remember that the AER (the amount of interest you'll earn before tax over twelve months) is usually higher, as you can see in our savings account comparison centre, where you'll also see that you can get comparable instant access accounts with no strings.
Another item in the small print that may confound you is the bonus. Sometimes the headline AER rate of interest includes a bonus that is only paid at the end of the year. If you withdraw your money before twelve months is up, you may lose the bonus interest on the withdrawn amount. It wouldn't surprise me if some accounts will not pay you any bonus at all if a withdrawal is made!
You should always keep an eye out for more competitive accounts as rates change all the time, but, as the bonus is paid for the first year only, you should certainly look around again after that.
These attached strings don't necessarily mean that the accounts aren't suitable, as the rates of interest are rather good. But before you choose your account, make sure you're familiar with the small print and that it doesn't impact on your expected needs. If you must make a withdrawal, don't make a series in consecutive months - try to add them all together.
You can get more interest if you're willing to tie your savings in for a longer period, or if you're willing to make regular contributions.
Usually savings accounts are pretty simple. When you choose a savings account you should usually go for the one with the highest rate of interest, but the above table shows clearly that you can't skip reading the small print.
> Compare savings accounts here at The Fool.