Many people like to store some of their savings in variable rate instant access savings accounts.

Unfortunately, these products can be far from interesting, and as a result savers are often unaware of things that might affect their returns. This article will list a few common pitfalls that savers should be aware of before placing their hard earned savings into a variable rate instant access account.

1 – Variable rate accounts have fluctuating rates of interest. Accounts that offer the top rate one month might not offer a good rate during the next month. Savers with these accounts need to keep a careful eye on their account, and be ready to change if the rate drops too far.

2 – Banks and building societies often have several different “issues” for each type of savings account. Older issues often receive lower rates of interest. So when checking the rate of your savings account, make sure that you’re checking the right issue.

3 – There are often penalties associated with withdrawals. For example, my HBOS savings account only allows five withdrawals per annum, and these are subject to a loss of one month’s interest.

4 – Savers are often lured with tempting introductory rates with bonuses. These bonuses are only usually paid after one year, and are subject to withdrawal penalties. For example, with Nationwide’s current MySave Online Plus account, savers who withdraw before the bonus period will lose the bonus and receive a lower rate in the month that the withdrawal is made.

5 – After bonuses have been paid, savings accounts often receive exceptionally low rates of interest. Savers must therefore move their money after they receive their bonuses.

Conclusion

You will have noticed that a common theme running through these tips is that savers are punished if they don’t keep a close eye on their savings. While variable rate savings accounts have more flexibility than fixed term accounts, they often punish savers who make withdrawals, and must therefore be virtually treated as fixed rate accounts if savers wish to yield the maximum return from them.

As a result of these features, more organised savers often prefer to store only a small portion of their portfolios in easy access accounts, and tend to store their savings in fixed rate accounts and other assets.

Disclaimer: This article is for educational purposes only, and aims to help people think about their personal finances in more details. It may contain errors and the author takes no responsibility for any losses or problems incurred as a result of the information contained within the article. Do your own research before investing!