A savings account is simply a place to put your money aside for a rainy day or a big purchase, and while stashed away, you’ll want the value of your cash to grow.
The most basic type of savings vehicle provided by a bank or building society is an easy access savings account, also referred to as an instant access account.
Here, you put your money away and you can usually make withdrawals when required.
What interest do you earn?
The interest rate paid is usually variable, meaning it can move up as well as down.
So when the Bank of England base rate rises there is a good chance the return on your investment will jump. When the base rate drops, so too will your return, in most cases.
However, banks and building societies are not forced to vary easy access savings rates in line with the base rate.
While savings rates generally follow movements in the official borrowing figure, providers sometimes cut the amount paid at their whim.
In the same vein, the advertised rate on an account is not always permanent. Many deals come with bonuses that disappear after a year to attract savers by pushing those offers to the top of the best buy tables.
Therefore, it pays to keep a close eye on your rate and switch, if necessary.
Beware the taxman
Also remember that you pay tax on most savings, unless you hold your money in a cash Isa. This means any interest you earn is taxed at your income tax rate.
The rate advertised is almost always quoted before tax, so always factor in any deductions before calculating likely returns.
Can you switch account?
If your easy access account is no longer paying a decent return, the switching process is usually simple as it a case of picking a new provider and moving the money by internet banking, withdrawing the cash or writing a cheque.
One cautionary note about withdrawals is that it is rare you can get instant access to your money despite many banks and building societies calling their deals ‘instant access savings accounts’.
Unless your account comes with a cash card or you can operate it via a branch, you will have to transfer the money electronically to your current account, or use a cheque. Both processes can take a few working days. Therefore, easy access is usually a more appropriate name.