If you are looking to open an easy access savings account, bear in mind that many of the leading rates include short-term bonuses which boost the amount of interest you earn for an introductory period.
Once the bonus period ends the rate plummets, so in order to make the most of these savings bonuses you need to keep your eye on the ball and be prepared to move your money again at that time.
Why are more and more savings accounts coming with a bonus?
The simple answer to this is to attract more custom. With interest rates at record lows many people see little benefit in moving their savings so in order to make the returns more attractive and increasing number of banks and building societies are choosing to offer accounts with bonuses.
This helps the providers draw in more customers and the hope it that the majority will stay put once the bonus period ends.
However, the savvy savers will move their money again once the rate of interest plummets.
Is there another option?
Not all easy access accounts include bonuses, so if you don’t want the hassle of moving your savings every year it is worth considering a ‘clean’ account. However, there is a trade-off as the interest rates on this type of account tend to be lower than those on the leading deals with bonuses.
And even if there is no bonus on an account, it is still important to keep an eye on the rate. The rates on easy access accounts are variable so even if you find a clean account paying a competitive rate of interest now, there is no guarantee that it will remain competitive over the long term.
Watch out for withdrawal restrictions
When comparing easy access accounts, as well as being mindful of introductory bonuses, you should also watch out for withdrawal restrictions as some accounts limit the number of penalty free withdrawals that can be made.
Shield your savings from the taxman
Any interest you earn on a savings account is taxable and this eats in to the overall return you get. However, you if you put your money into a cash ISA you will earn tax-free interest. ISAs therefore offer a valuable tax-break that is well worth taking advantage of.
In the current tax year, which ends on April 5 2012, you can invest up to £5,640 in a cash ISA.
Wherever you choose to invest your money, it makes sense to shop around for the best deal and comparison sites, such as MoneySupermarket, offer a great way to do this as they instantly compare a range of savings products and you can often apply online.