Savings Accounts - Basic Tips
Savings accounts trade off a low return, in exchange for security and availability, compared with investments.
If you choose an ordinary savings account but you are unlikely to earn more than £5000 P.A., ask your bank for form R85 so you can have interest paid without tax taken off.
If interest on savings doesn't beat inflation after tax, then you're losing money.
Introductory rates: Banks offer temporary interest hikes to attract new customers. Move your moolah to a better payer as soon as the bonus ends.
Bait and Switch: Some banks entice you in with a high rate, then reduce the rate, and then try to sell you another similarly named account so you think you're still earning good interest. Always know your account's exact name.
Another trick is to quote one of two different interest rates. The Gross rate is the flat amount paid. The Annual Equivalent Rate (AER) includes interest compounded over the year. Check which rate you're being quoted when comparing deals.
Fixed rate. This means sacrificing access and locking the cash away for the entire term. The rates tend not to be much higher than a variable rate.
The Rule of 72 can tell you approximately how long it will take for your investment to double in value. Divide the number 72 by your investment's expected rate of return. Assuming an expected rate of return of 8%, your investment will double in value roughly every 9 years (72 divided by 8 equals 9).
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