Rating the rates

Behind the figures

Banks and building societies know that you are looking for rates that makes your money grow the most. That is why they set up marketing schemes to attract more savers. When applying and opening a savings account be aware of the existence of these methods. Remember that rates might not be what they seem to be.

·        Financial institutions often include a bonus in their rate to make it seem more attractive. In reality, these bonuses are usually applicable only for a short term, usually between 6 months to a year of the account being open. Some banks make it difficult to earn bonuses. They require you to comply with conditions such as limited periodic withdrawals.
·        Some providers offer accounts with initially attractive rates that drop after the six or twelve months introductory period is over. Usually higher interest rates are offered to new investors. 
·        Banks often offer accounts with similar names that pay different interest. If you don’t read the terms and conditions carefully you might end up putting your money in an account different from the one you wanted.
·        Two different interest rates are often quoted but have different meanings. The gross rate is the flat amount paid each stated period. The Effective Rate of Interest (EAR) takes into account the interest compounded throughout the year. These rates are usually quoted before tax.
·        Fixed rates are attractive because they provide stability and certainty. Because inflation rises at a rate of about two percent, each year your fixed rate loses purchasing power. Inflation can erode your money after the third year.