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The Perks and Pitfalls of High Interest Bank Accounts

For those with all their funds deposited in a current account the appeal of switching as much of it as possible into a high interest account is fairly obvious. In a high interest account one’s savings will accrue interest, and of course interest itself bears interest so any monies deposited are protected from depreciation caused by monetary inflation.

It ought to be relatively straightforward therefore, place any balances not immediately needed for everyday household expenditure into a high interest account and watch your savings grow.

Of course, like most things, it is not always that simple. For banks to pay a higher rate of interest they will naturally expect something in return. That something is usually a commitment to deposit for a fixed period of time so that the bank may be assured that it has possession of your funds in order to itself lend out at interest. Should you need to backtrack on the deal and pull out your funds sooner than expected there will usually be a penalty invoked which enables the bank to protect itself from any loss incurred as a result of your unexpected action. Hence the bank wins either way.

Investors, whether large or small, understand all this and are prepared to accept some restriction of their capital in exchange for receiving more interest upon their savings. But the bottom line of it all must inevitably be how long restrictions apply and what the penalties are for withdrawing one’s funds prematurely. Terms of this kind will be dependant upon the bank and it is this kind of information that potential investors will need to avail themselves of before making a decision as to where to place their funds.

Another possible pitfall is a bank offering high interest only for a certain limited time. If a high interest deal is only for a finite period then an investor may be wary of any agreement that commits him or her to retain funds in the account much beyond the period upon which the high interest return is paid.

High interest bank accounts do provide an attractive option for keeping ahead of inflation and building a nest egg for the proverbial rainy day. It is simply prudent to examine the terms offered by each one of the high interest bank accounts and to look for any potential pitfalls as well as the just the balance on the bottom line. Investors who do this can enjoy their full benefits of a high interest bank account without being caught out in any way.

Compare high interest bank accounts online using the companies and comparison sites listed above.

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