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You Are Here: Home > Personal Finance > Banking & Saving > 5 min guides > Instant Access
5 Minute Guide to:

Instant Access Savings Accounts

SCAM ALERT

  • One of the most read pages on this site is on investment scams

  • With interest rates at such low levels, and savers starting to suffer, it's a very fertile environment for the scammers who try to tempt people with yields of 10%-20% via 'alternative investments'

  • Invest with these cold calling firms and you will lose ALL your money

  • There's a new term called 'financial grooming' - please understand how it works and don't be a victim (see article below)

  • I can only help BEFORE you invest, if you invest then I can guarantee you'll lose everything

  • Here's the article

Say NO to -

  • All Cold callers

  • Grandly named companies located in impressive offices or areas (Mayfair, The Gherkin, Knightsbridge etc) offering yields of 10% - 30% a year

  • All firms that aren't regulated by the FSA. Make sure you call the firm in question from the telephone number on the FSA's website, many scam companies try to pass themselves off as legit firms

  • All firms that sell 'alternative investments' -
  • Carbon Credits
  • Fine Wine
  • Plots of land that will 'soon' get planning permission
  • Plots of land in sunny climates (Brazil if the big one right now)
  • Coconut plantations
  • Palm Oil plantations
  • African farm land
  • UK Burial plots
  • Rare Earth Metals
  • Anything where the yield is 10%+ and made to sound like it's easy (often they'll say it's guaranteed), and
  • Anything that's hard to get good information on yet easy to build a story - Rare Earth Metals and swamp land in Brazil masquerading as quality development potential are two good examples
  • If you're unsure of anything please feel free to email me, Alex Green

  • I can only help BEFORE you invest

  • DON'T LET THE SCAMMERS FINANCIALLY GROOM YOU

  • If you want to do you bit please try to educate the over 50s, the scammers love to target that group

An Instant Access Savings account is a type of savings account where -

  1. The interest rate is usually variable, ie it can move up and down alongside either the prevailing Bank of England official base rate or according to the bank's own policies, and
  2. Money is allowed to be both deposited and withdrawn without any restrictions. It is instant access as well, ie money can be withdrawn at any time
How do they work

In the savings world the instant access account is without doubt the most common with all banks and building societies offering them. Also, each bank may promote several different instant access accounts all with different names and with varying interest rates paid.

Note that these accounts are often automatically linked to your current account. Or, if you open a current account it comes with an instant access savings account attached, but of course it doesn't have to be used.

What does variable interest mean

AS the name suggests a variable interest rate means that the interest rate can vary, moving both up and down over time. Any movement in the interest rate will normally be down to either -

  • A change in the official bank of England base rate, and/or
  • The bank or building society altering its own rate

However, official interest rates don't move that much, perhaps 2-3 times a year (assuming the economy is not roaring ahead of getting crushed). so the rate paid on most instant access accounts is relatively stable. What is interesting to note is that by law the banks have to send a letter telling their clients when the rate has either risen, or more importantly, fallen.

Tip

Savers are advised to read any correspondence received from their bank as this is one of the keys to becoming and staying financially organised.

See Secret number 8 - 10-30 minutes a week - all you need to be financially organised - which is one of this site's 10 Secrets to Good personal Finance

What does instant access mean

Again, as the name suggests, any savings held within the account can be withdrawn instantly without any restrictions such as a loss of interest. For example, it is possible to deposit £100 cash at 9am and then withdraw it later in the day.

This is important to understand because some accounts such as those discussed on our 5 minute guide to fixed income savings bonds do have withdrawal restrictions.

Pay attention to any interest rate bonuses
An interest rate bonus is where an account pays say 2% but the bank adds on a 1.5% bonus for a set period of time, usually 3-12 months.

The longer the bonus the better the deal but make sure you re-evaluate the account when the bonus ends. Otherwise there's a good chance the overall interest rate on the account will be poor in relation to the current best buy tables.

Advantages
  • Variable interest rate - Can be both good news and bad. The good news is that if official interest rates are raised it's normally better to have money deposited in a variable rate account as theoretically the account's interest rate should also rise to reflect the positive base rate movement

  • This is a very simple product and when it comes to Personal Finance the simple products are normally the best as the banks can't hide any potential disadvantages in the smallprint - See secret number 3 - Buy simple and flexible which is one of this site's 10 Secrets to Good Personal Finance

  • It also adds flexibility to a savings plan - Savers with more than £5,000 can split their cash around into the different styles of savings account including instant access ones

  • Money is guaranteed up to 85,000 - The government guarantees all savings within a banking group up to £85,000

  • Easy to open and run - Opening an account normally takes less than 10 minutes if done online or over the phone. Also, it is possible to use internet banking as well. This is a great way to manage your money and financial commitments efficiently. Personally I love internet banking - See - How to be safe when online banking
  • See also secret number 4 - The internet - 4 reasons why it's your financial friend which is one of this site's 10 Secrets to Good Personal Finance

  • Plenty of choice - At any one time there are probably 300+ instant access savings account on the market. The trick as ever is to efficiently sort through the dross to find the ones with the highest interest rates.
Disadvantages
Where to buy
All banks and building societies offer instant access accounts and as a good rule of thumb the Building Societies normally offer far better rates of interest.

However, with probably 200+ accounts on the market at anyone time this creates the problem of too much choice.

How to buy
Most accounts can be opened either online, via the phone or in branch. This means it's possible for someone living in Devon to easily open an account with a Manchester based Building society.

Overall the account opening procedure is normally simple although you might be required to send some ID to the bank or building society in question. What they'll usually ask for is a photocopy of your passport/Driving licence as well as a recent utility bill or bank statement to prove your present address (note, mobile phone bills are normally not accepted).

Buying tactics
Watch out for hybrid instant access accounts

The banks often love to play games and one thing to watch out for is a savings account that's billed as 'instant access' but comes with withdrawal restrictions. For example -

  • Only 2-3 withdrawals allowed per year
  • If anymore money is taken out an interest rate penalty will have to be paid, perhaps a loss of 90 days interest on either the amount withdrawn or on the total balance

Be on the lookout for these accounts as they've been a trend over the last few years. What the banks are trying to do I think is simple -

  • Trick some of their customers into thinking they are depositing savings into a standard instant access with no withdrawal restrictions
  • The banks know only too well that a percentage of customers won't either understand what they're actually buying or won't bother to look for any catches
  • And if they make more than the allotted withdrawals per year the bank will then make easy profits at the customers expense

The simple way around this problem is twofold -

  1. Be aware of how the banks operate, ie they often love to play tricks. See secret number 2 - Do your own research - it won't take long which is one of this site's 10 Secrets to Good Personal Finance
  2. Make sure you take a few minutes to study the 'Terms & Conditions' especially the part that relates to how many withdrawals can be made over a period of time

Do both of those and it's hard to be taken advantage of.

Watch out for marketing gimmick accounts
The following is an old and trusted marketing trick played by most of the banks who issue savings accounts, including instant access ones -
  1. Create a new account and pay an outstanding interest rate, perhaps 0.5% above what the current best buy pays
  2. This generates lots of press and in turn many people will rush to deposit cash
  3. But when the dust settles, perhaps 1-3 months later, start to reduce the interest rate (remember, the account's rate is variable)
  4. Now the deal starts to look somewhat unattractive but the banks all know that apathy is a great weapon to use against the public
  5. This is because a good majority of the new savers either won't realise the account's rate has been slashed or won't bother to do anything about it and move their cash
But let's not complain too much how the banks operate, that's their decision. Instead, a better plan is to realise they might play games and to develop a strategy to compete.
How to get around this problem

What I'd recommend is that you don't chase the best deals all the time otherwise you might find yourself opening new accounts several times a year.

Sure, open a load of accounts if you have the time and you have ample funds in excess of £50k, otherwise it's normally always better to keep things simple and make sure your cash is deposited in an account that pays at least a decent rate of interest. For example -

  • At the time of writing the current best buy instant access pays 3.30% (interestingly enough it paid 3.78% just a month ago when it was first released)
  • If I had say £10,000 in savings and received 3% I'd be happy and wouldn't bother to move my cash even though the best buy account now pays 3.38%, the maths I think supports this:
    • 3% interest on £10,000 is £300 per year (gross, so tax not taken into account in this example)
    • 3.38% interest on £10,000 is £338 per year so by moving my money from 3% to 3.3% I'd earn an extra £38
  • So the question is now - is it worth moving my cash for an extra £38 and maybe having to move it again in 3-6 months time if the rate drops
  • Some would argue yes, others no
  • My personal opinion is there are there are probably more important things to do especially as the rate I'm receiving at 3% is still competitive

Of course, the figure I've used is large at £10,000 so for total savings of under this amount always chasing the best deals to earn an extra 0.1% - 0.5% in interest is probably a waste of time

To summarize:

  • It only makes sense to chase the best deals if you have large savings in excess of £50,000 - This is because of the of how the Best Buy tables often work, ie top paying accounts are introduced with many slashing the rate within the first 3 months
  • Otherwise just concentrate on getting a good rate of interest which will probably be 0.25%-0.50% less than the current Best Buy and that won't be such a difference when you work out what it represents in pounds and pence
Watch out for savings accounts paying 10%+ a year
You often see these accounts advertised yet I think they're more about marketing and tricks than offering a good deal. The main problem with them is they come with many small print catches.
If you want the best for your money then learn to be proactive

If you want to earn a decent rate of interest then you've got to work at getting the best rate. Do this by reviewing your money and what interest rate it's receiving, at least once a year.

Otherwise there's a good chance the interest rate will fall, and often dramatically over time. A classic example of this, and one which older readers will probably remember, is the Halifax Building Society's Liquid Gold account which was a massive success in the 1980s and 90s thanks to a combination of -

  • A great interest rate (at the time), and
  • An extremely successful marketing campaign fronted by Arthur Daley

The trouble is, as the screenshot of Halifax's website shows, the account now pays an interest rate of just 0.05% or 50p per £1,000. Plus, it's hilarious the Halifax proudly boasts that nobody helps savers grow their cash like they do!

Interest rate paid on The Halifax's Liquid Gold Savings Account

Interest rate paid on The Halifax's Liquid Gold Savings Account

What makes the story more interesting is that in banking circles the Halifax is rumoured to hold at least a billion pounds of client money in the account.

However we can't really fault the Halifax for dropping the rate, that's their business decision. But as indicated above the banks are required by law to send notification by post when they either raise or cut interest rates on their accounts. So Liquid Gold savers must have been aware what was happening and could have removed their money at any time, even if that meant transferring into one of the Halifax's better paying accounts.

The summary is therefore -

  • If you want the best, or at least a half decent rate for your cash, don't get complacent and review you saving(s) account at least once a year
An Instant Access account is perfect for an Emergency Fund
An Emergency Fund is a savings account that's designed for emergencies, the main one being - loss of job.

The fund should have a minimum of 3 months and preferably 6 months of average monthly outgoings. So if you currently spend around £1,000 a month, look to deposit £3,000 - £6,000 in your fund.

But why do most people need such a fund? Read more on this article.

LearnMoney.co.uk comment:
Instant access savings accounts can't really be faulted, assuming they pay a decent rate of interest, and are therefore excellent products for savers as -
  • They are simple to understand and operate
  • The top ones normally pay an excellent rate of interest - For example, at the time of writing base rates are 0.5% but there are at least 6 accounts paying 3%+
  • Flexibility - When it comes to our money, and especially savings, it always pays to be as flexible as possible and instant access accounts are definitely the most flexible. See secret number 3 - Buy simple and flexible which is one of this site's 10 Secrets to Good Personal Finance
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