Ella Mower, Senior Content Writer at Moneyfactscompare.co.uk, explains why you should review your savings and know how to find the best account.
Many of us lead busy lives which can make it difficult to find the time to review our savings accounts. But, while it may be more convenient to stick with the same account and provider you’ve had for many years, it could mean missing out on extra money.
Why should you review your savings accounts?
Have you noticed your regular food shop getting more expensive? Or are you paying more at the petrol pump? Inflation (the rate at which cost of goods and services are rising) has steadily accelerated over recent months and left many people feeling the pinch.
A competitive savings account is key to combatting the rising cost of living. Where an account offers an interest rate below the rate of inflation, your money is effectively dropping in value (also known as losing ‘purchasing power’).
For example, if you had £2,000 in an account paying 2% interest while inflation was running at 3%, you’d earn £40 over the year – but the rising cost of living would reduce the value of your savings by around £60. In real terms, you’d still end up worse off. That’s why regularly reviewing your savings and finding an account with a rate that beats inflation is so important.
How to find the best savings account
Comparison sites, such as Moneyfactscompare.co.uk, can be a good place to start your search for a new savings account.
While the interest rate is likely to be the most influential factor in your decision, be sure to consider all features of a savings account carefully to find one that best meets your needs. There are many types of savings accounts to choose from that cater to a variety of goals, including:
- Easy access savings accounts: Perhaps the most flexible type of savings account, an easy access account lets you make deposits and withdrawals at any time. However, they offer a variable interest rate that can change at short notice. Some may also apply a lower interest rate if you exceed a given number of withdrawals within a year.
- Fixed rate bonds: While fixed bonds offer an interest rate that is guaranteed to remain the same over the course of a term, bear in mind you typically won’t be able to access your cash during this timeframe. Furthermore, most don’t accept further deposits outside of an initial funding window, and you could be left out of pocket if inflation rises above the rate at which you fixed.
- Regular savings accounts: A regular savings account could help to make saving a habit; these accounts tend to pay some of the highest rates on the market in exchange for following a strict set of criteria (such as meeting a minimum monthly deposit).
- Individual Savings Accounts (ISAs): There is also a wide range of ISAs to consider which offer tax-free interest on your hard-earned cash. You can deposit up to £20,000 across ISAs each tax-year.
Don’t forget to consider less-familiar names when shopping around for a savings account; smaller providers often offer some of the best interest rates as they look to entice new customers and generate brand awareness. What’s more, they are covered by the same Financial Services Compensation Scheme (FSCS) protection as the UK’s biggest high street brands, so your money is safe.
The bottom line
Checking your savings might feel like one more job on your to-do list, but it’s one that can make you better off. By taking a few minutes to compare accounts and switch if needed, you can make sure your hard-earned money is working harder for you, helping you keep pace with rising costs and reach your financial goals faster.
