When interest rates stop being the most important thing about a savings account

At Money.co.uk Savings, our eyes are always on interest rates  - we monitor the data daily to see how accounts are performing against each other and the Bank of England’s base rate. 

Some might even go so far as to say we are slightly obsessed with interest rates - but, if that means it helps you to make a confident financial decision, we’ll take it.

But interest rates are only a part of the story, and they should not always be the key reason you choose a particular savings account.

Interest rates are more like the icing (and maybe the jam, and possibly a bit of the sponge too) on the cake. 

It’s a similar situation to when you choose an insurance provider. Yes, the cheapest option might be the most enticing, but to find the right cover for your needs you have to take into account all of the terms and conditions. 

And that’s the same with savings accounts.

As well as looking at the interest rates, you should consider the account’s accessibility, withdrawal terms, initial deposit and if there are any minimum balance requirements. 

These factors should always be aligned with your financial goals to make sure you are saving your money in a way that suits your circumstances.

After all, there’s no point earning an extra fiver on your savings if you can’t then get at them when you need them. 

Take fixed-rate bonds as an example. This type of savings account is currently top of the class for interest rates, but it does come with some restrictions. 

Investec’s one-year fixed rate saver currently has an interest rate of 5% and this is a great account if you want to maximise the interest on your savings. However, as it’s fixed-term the money will be locked away for a whole year, so it’s not ideal if you need to access your savings sooner. 

The good news is the account can be opened and managed online, but you will need a minimum of £5,000 to deposit into the account.

It’s a similar story with Hampshire Trust Bank’s 18-month bond (issue 24), which has an interest rate of 5.01%. This is currently a market-leading rate for a savings account but you can’t access the money until the end of the 18-month term. 

This account does have a smaller opening deposit than its rivals, as you’ll only need £1 to get things started. However, if you are enticed by the bigger interest rate, it makes sense to lock away as much money as you can. 

The other useful factor with a fixed-rate is that you’ll know exactly how much interest you’ll earn at the end of the term, which will help you to budget and plan for the years ahead. 

But if you’ll need to access your savings in the not-too-distant-future then those high interest rates will come at too great a cost.

That’s why an instant or easy access savings account might be the answer. The interest rates will normally be lower - and variable - than a fixed-rate bond but it’ll give you the accessibility you need. 

It’s important to note that there is a difference between instant and easy access savings, so always read the terms and conditions carefully. An instant account means that you can access the money immediately, whereas an easy access normally has some withdrawal restrictions. 

Hanley Economic Building Society’s easy access branch saver currently has a huge 4.25% but it comes with some important terms and conditions. You can open the account in a branch or by post, and you can only make one cash withdrawal per calendar month. You’ll also need a minimum initial deposit of £1,000.

Alternatively, there’s Yorkshire Building Society’s online rainy day account (issue 2) which has an interest rate of 3.85%. This can be opened with a minimum of £1 and you can open the account in branch or via the telephone. Once the account is set up, you’ll be able to manage your savings in branch, post or online. However, you can only withdraw money on two days per year based on the anniversary of account opening. 

So although they are not as restrictive as a fixed-rate bond, these easy access accounts do have some limitations. 

Elsewhere, Chip’s instant access account is one of the top instant access savings accounts in the market. It currently has an interest rate of 3.82% and you can deposit and withdraw funds almost instantly and open an account with as little as £1. 

This means it has a good balance of a competitive interest rate and the flexibility to access your savings when you wish. 

Interest rates do still matter, just make sure you’re getting the best rate you can for the type of account you need - rather than an amazing deal on a product that causes you problems later on. 

Compare the different savings accounts available first; from a fixed-rate to an easy access, and decide which type would suit you. You can then review the best rates within that category and this will help you to make the decision.