Making the most of your savings

Saving is a contact sport. Getting the best out of an account requires a game plan, effort, consistency and vigilance. If you don’t watch out, your hard earned nest egg is eaten away by inflation and charges.

Try these six steps to a better savings account:

Step One: Understand your account

Not all savings accounts are created equal. If you have a savings account already ask yourself:

  • does it pay one rate of interest, or tiered interest?
  • is the interest calculated daily, monthly or yearly? Daily calculation of interest is best.
  • is the interest paid monthly or annually?
  • what are the account charges?
  • can you make unlimited withdrawals without charges?
  • is your savings account a Pie? Pie deposit accounts have better returns thanks to lower tax.

Step Two:Use it as a tool

A good savings account is a tool to help savings grow faster. Check what facilities your bank has to help you save. Some banks, for example, may be able to split your incoming pay between accounts or they may have sweep facilities that allow you to sweep excess money automatically into (or out of) your savings account.

Step Three: Understand your own money personality

Disciplined savers are free to choose accounts with the very best interest rates and charges. On the other hand people who raid their savings at mere wiff of a bargain might be better off looking for an account that enforcesa more disciplined approach.

Notice saver accounts, for example, are an excellent way of ring fencing precious savings.Customers can drip feed money into notice saver accounts but need to give notice to withdraw it, which kills the urge to spend now and regret later.

Bonus saver accounts encourage people to make regular deposits or not make withdrawals in order to get a better interest rate.Each account has its own rules, but they often work by paying a bonus in months where no withdrawals have been made. Or they might require a certain number of deposits a month to qualify for the bonus. Either way there is a financial incentive for customers to follow the rules.

The downside of bonus saver accounts is that the basic interest rate is often very low.That means savers are worse off than they would be with a regular savings account unless they manage their savings behaviour by the book. If you don’t trust yourself to stick to the rules then look for another account that matches your profile and savings goal.

Step Four: Ask the bank for advice

Banks’ staff members can look at customer’s spending and saving patterns and suggest better combinations of accounts or more effective ways to use the existing accounts. Many people, for example, find it helpful to have three or more accounts with their wages or salary automatically split between them. By doing so, they’re saving first.

The bank could have other useful suggestions based on savings behaviour. An example might be unlinking a savings account from the customer’s ATM card making withdrawals more difficult.

Step Five: Turn savings into investments

The purpose of saving is to build up net worth.The trick is not to leave large amounts of money in savings accounts for years on end.Savings accounts should be for short to medium term accumulation and perhaps to hold an emergency fund.

Savers should convert their savings to investments, which over the long term earn more. At the simplest level a term deposit will have a higher interest rate than an on call savings account.

Other longer term investments include managed funds, share and property investments.

Step Six:Monitor your savings

By keeping track of your accounts you can ensure that you’re always getting the best deal Likewise, regular monitoring enables savers to meet goals and to make better investment decisions.

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