How the credit crunch has affected savings accounts

The credit crunch had a widespread effect on products offered by banks, meaning it can be a challenge to work out what the best savings interest rates are for your money.

To combat the recession, the Bank of England began to lower its base rate to encourage banks and other financial institutions to adjust the level of interest charged on loans and mortgages. However, this has also had an impact on the rates enjoyed by savers, with many providers bringing down interest across all products.

This can make it difficult for people who rely on their savings as a means of funding their day-to-day necessities, particularly those who are retired. Despite this, it is still possible to secure a deal that allows you to benefit from the maximum rates for your circumstances, although you will definitely need to shop around for the best options.

It is also vital that you are aware of the risks of switching your savings accounts by reading the small print on any agreement you enter into.

To help you in your search, you can use a comparison website. This enables you to put in your personal information and current situation and automatically receive a list of the best deals available, all in a simple, easy-to-read manner.

Whether you are hoping to increase the flexibility of your savings or wish to lock money away and earn as much interest as you can, there should be an option that fits your needs.

For those looking for a product that offers the latter, there are a number of high-interest products out there. However, there are a number of factors to consider before you take the plunge, including the fact that many of these accounts will require you to agree to a fixed term.

During this period you will not be able to remove the money from your account, with some arrangements being in place for up to five years before you can access the cash.

The longer the term you sign on for, the higher the interest rate usually is for these agreements. This could pose a challenge for anyone who requires a portion of their savings for their everyday needs.

There may also be maximum monthly deposits or limits on how much the account can hold at any one time, although this is usually higher than with instant access products.

Overall, a fixed-term deal is something to consider if you have large cash sums and are happy to have the money tied up for the foreseeable future.

Alternatively, easy-access options may be your preferred choice if flexibility is your primary concern. Depending on the product you select, you can have varying levels of access to your money, with some allowing you to make a withdrawal with no notice period at all.

This does have an effect on the rates provided, with many banks and building societies offering lower savings interest on such accounts. You may also be penalised if you overstep the maximum deposit limit in any given month, with the cap also being smaller than fixed-term agreements.

Whichever account you opt for, the interest will be paid either monthly or annually, with higher rates afforded to savers who decide to receive their payments on a yearly basis.

Since the credit crunch, there has also been a rise in the number of online savings accounts, as many lenders look to encourage people to become more financially responsible by checking their income, outgoings and current balance more regularly through the click of a button. The application process for these accounts can also be easily set up, avoiding an otherwise lengthy procedure.

Cash ISAs are another option, with this particular product becoming increasingly popular with UK residents. One of the main benefits of choosing a cash ISA is that it comes with tax benefits, allowing you to keep the profits from any money invested in the account each year.

You also have access to your savings at any time, although there is an annual cap on how much money can be put in this type of account, which tends to increase in each fiscal year in line with inflation.

However, anyone who decides to switch their accounts should make sure they are aware of the benefits and disadvantages of each product by doing the proper research in advance.

Savings interest rates 

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2011-08-12 16:36:30 © Moneyextra.com