Whatever you do, don't take out any cash

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The Independent Online

You never know when your boiler will pack in or your car conk out. In such crises, an emergency savings fund can make a big difference. That's why it should be one of your financial priorities.

You never know when your boiler will pack in or your car conk out. In such crises, an emergency savings fund can make a big difference. That's why it should be one of your financial priorities.

But where should you put this rainy-day cash? A quick glance at our "best buy" tables reveals a dizzying number of accounts vying for your money, ranging from instant access online to fixed rate and notice.

To encourage customers to save, many banks and building societies offer higher rates if you make only a limited number of withdrawals each year.

Last week, Cheshire building society threw a new savings account into the mix, offering instant access to your cash but with the interest you earn linked to how often you make withdrawals.

If you've got £3,000 in your account, for example, you'll earn 3.3 per cent and can make up to four withdrawals without penalty in a 12-month period. But if you find yourself dipping in more often than this, your savings will earn less.

On Cheshire's sliding scale, the more withdrawals you make, the less interest your cash earns. In the worst-case scenario of 13 or more withdrawals in a year, you'll earn just 1.55 per cent.

The same principle applies if you save with the Scarborough building society. It spruced up rates on its Easy Saver range last week and now pays 4.15 per cent interest on deposits of £3,000 or more. However, there is a nasty sting in the tail if you make more than three withdrawals a year. If, for 11 months, you stick to the rules (earning 4.15 per cent interest) but then overstep the mark with a fourth withdrawal in the 12th month, all your good work will be wiped out. You will receive just 1 per cent interest on your cash for the entire year.

Savings accounts that come with strings limiting the number of withdrawals you can make need to be treated with caution, says Anna Bowes of independent financial adviser Chase de Vere.

"Saving today can be very complicated. For example, the Cheshire account is marketed as easy access and some people might think they can dip in [regularly] and not get penalised. It's all a bit of marketing spin."

Far better, she says, to go for an instant access account offering a higher rate, such as Sainsbury's (5 per cent) or ING Direct (4.89 per cent).

You need access to the internet for many of the better-paying deals and they are also likely to change in line with interest rate movements, so keep a close eye on them.

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