It’s all too easy to forget about money in the bank or building society when we are busy worrying about the school run and the weekly shop. But if you don’t monitor the rate carefully – and switch your account if necessary – you could be missing out.
Low interest in easy access savings accounts
For example, if you had put £1,000 into an easy access savings account paying 0.01% in October 009 and left the money for three years, you would have earned net interest of just 24p after basic rate tax, according to research by Defaqto.
Make money by switching accounts
You would have earned a much healthier £30.19 if you had picked the top account in October 2009 and stuck with it for three years.
But if you had opened an account that paid the highest rate of interest in 2009, switched to the best deal in 2010 and then moved you money again to chase the top rate in 2011, you would now have interest of £71.73.
You’ve gone from 24p to £71.73 interest in just a couple of steps!
Don’t be caught out by savings ‘bonus rates’
Savers who stick with the same account are often caught out by bonus rates. A bank or building society will typically pay a high rate of interest for one year to lure new savers.
For example, Halifax’s easy access account currently pays a reasonable 2.8%. However, that rate includes a bonus of 2.7% for one year. In other words, after 12 months, the interest will plummet to a paltry 0.1%.
Of course, most of us are either too forgetful or too lazy to move our money when the rate drops, so we miss out on higher rates of interest and our money loses value.
The best thing to do is make a note in your diary as to when your account rate drops. That way you can forget about it until that date rolls around – then move your cash to an account that pays you a decent rate.
The message is clear: if you want to make the most of your money, be prepared to switch accounts. Loyalty rarely pays in the world of savings accounts.
Naomi Caine was editor of The Sunday Times Money section for six years before she moved out of London to bring up a young family. She now juggles two children with a freelance career, and has written for a variety of publications, including MSN, Yahoo, The Times, The Sunday Times, Which? Money, Money Week and The Sunday Herald.