What to look out for when your applying for a savings account

You rarely get something for nothing in life and bank accounts are the same. They’re based on a contract between bank and customer. Only by reading the contract and understanding the interest and charges can a customer be sure they have chosen the right account.

Watch for the ‘gotchas’:

Banks need to make a profit. Customers, on the other hand should do their best to avoid the charges that make banks profitable. In order to do so, it’s a good idea to be aware of certain common practices in the banking industry. These include:

  • Eroding interest rates are common. Banks will often drop the interest rates they’re paying or introduce new accounts without letting existing customers know.
  • It’s a good idea to be aware of minimum account balances. If your account falls below that level, the interest rate may drop or disappear completely.
  • Likewise don’t forget to make monthly payments on accounts that require them or you’ll suffer the same fate.
  • Savings accounts may have unexpected fees. They may charge, monthly account fees as well as fees for withdrawals, electronic and manual transactions, and even phone banking.
  • Beware of bonus saver accounts. Be aware of the bonus conditions required to get the top rate otherwiseyou will only be paid the base interest rate which can very low. Likewise prize draw accounts offer a very poor return in hard cold financial terms, but appeal to some people’s desire for a flutter.
  • Interest rates vary hugely; sometimes by several per cent.

Smart savers shop around or ask their existing bank for a better deal.

Read the fine print

It’s not that difficult to compare accounts. Canstar helps you do it with its star ratings. It’s also simple to log on and read the terms and conditions of savings accounts and find out what the charges are. That information is only a few clicks away.

If you choose the wrong account you could be paying charges every month for the same service offered by another bank for “free”.

When you shop around for a savings account, don’t forget that there are more than the big high street banks to choose from.The PSIS, TSB, SBS Bank, RaboDirect, Heartland Building Society and many credit unions offer savings accounts.

Beware, however, that some of these organisations (except RaboDirect) have lower credit ratings thanNew Zealand’s biggest banks.

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