High Interest Savings Accounts: Pros and Cons

If you know anything about finance and banking, you will know that the landscape is always changing. In recent years, this has meant the rise of online banking. What began as a convenient and accessible alternative to traditional banking, online banking has now become the preferred method for millions of people around the world. The growth of online banking has been organic - it’s been largely driven by customers who want to manage their finances in a simple and convenient way - but it has also allowed banks to pass on significant benefits to their customers, such as high interest savings accounts.

The Rise of Online Banking’s Impact on Interest Savings Rates

There’s a lot of growth happening in the world of online banking, and that’s unlikely to change any time soon. A lot of this has stemmed from advancements in technology and a consumer demand for convenient financial services, with banks doing everything they can to embrace a more digital way of doing things. This has made online banking accessible to a wide and varied audience, and everything from checking account balances to applying for loans can now be done online. 

There are numerous benefits of online banking. For example, it’s accessible and convenient. Online banking allows customers to access their accounts from anywhere in the world, at any time. This has made it the ‘go to’ choice for busy individuals who prefer to manage their finances on the go. It’s also a safe and secure way of banking. Advances in cybersecurity - such as multifactor authentication and real time fraud detection - have made online banking safer than ever, and it’s built trust among consumers.

But, one of the main things to have come out of the rise of online banking is high interest savings accounts. Savings accounts have always been popular but, with the reduced overheads that come with online banking and the reduced reliance on banking in person, banks are now able to offer higher interest rates to customers. Banks have been able to reduce operational costs by moving many of their key services online, as there’s a reduced need for rent, bills, in person staff and the upkeep of branches. These savings can be passed on to customers in the form of lower fees and better interest rates. 

The Pros of High Interest Savings Accounts

If you are looking for a savings account, it’s important to compare the interest rates being offered. More often than not, you’ll want a high interest savings account, and these have become increasingly popular among savers who are looking to maximise their returns. With the promise of higher interest rates compared to standard savings accounts, these accounts are certainly worth considering. 

High Returns and Maximum Savings - The most significant, and one of the most enticing, benefits of a high interest savings account is the high returns that you can expect. This means that you maximise your savings, ensuring that your money grows as quickly as possible, and faster than if you were to use a traditional savings account. For example, the Revolut Savings Account boasts an interest rate of up to 4.75%, which gives your savings a significant boost.

Safe and Secure Savings - High interest savings accounts tend to be offered by well known and respected banks, and savings are insured up to a certain amount. This means that your money is safe even if the bank fails. You can put your money in a high interest savings account, knowing that it’s safe and secure until you want to spend it.

Easy Access to Your Money - There are a range of investment options for you to choose from, but many involve locking your money away for a fixed term. For example, if you buy stocks and shares. But, high interest savings accounts provide easy access to your funds. You can withdraw your money whenever you need to, without having to go through a long process. This is beneficial if you suddenly need cash to cover a hefty bill or a financial emergency.

No Risk to Savings - As the interest rate of a high interest savings account is predetermined before you deposit it, you will know exactly what your return will be. This isn’t the case with stocks and other investments, which could lead to you losing money in the long run. There’s nothing volatile or risky about putting your money in a savings account.

Compound Interest - When you put money into a high interest savings account, you will usually be paid that interest daily, weekly or monthly. This means that the interest is added into your savings pot, and has time to compound. This can help your savings grow more quickly over time, as you will be earning interest on your interest.

Are There Any Downsides of High Interest Savings Accounts?

Despite the obvious advantages to choosing a high interest savings account, there are a handful of downsides to be aware of. 

Variable Interest Rates - High interest savings accounts tend to offer better rates than a lot of standard accounts, but these rates can fluctuate. When market conditions change, the variable rates of a high interest account can also change. This means that your returns could be less than you expected. Though you won’t lose money, variable interest rates can prevent you from maximising the return on your savings.

Minimum Balance Required - Sometimes, you need a set minimum balance to take advantage of a high interest savings account. If you don’t have the minimum balance, you won’t qualify for the higher interest rate. Some accounts will also reduce your interest rates or charge you if your balance falls below the minimum requirements. This would mean that you stop benefiting from the account.

Limited Transactions - Some high interest savings accounts come with restrictions on the number of withdrawals or transfers that you can make each month. If you go beyond these limits, you could be charged a fee. You might even find that your account is switched to a standard savings account with a lower interest rate if you do too many transactions. 

Unexpected Fees - It’s not uncommon for high interest savings accounts to come with additional fees for maintenance. But, you might also encounter unexpected fees for making more transactions that you should, or for falling below the minimum balance required. These fees can reduce your returns, which is why it’s important to choose an account with minimal fees.

Risk of Inflation - High interest savings accounts offer better returns than standard savings accounts, but there’s no guarantee that the interest rate will be higher than the inflation rate. This means that the value of your savings could decrease over time, especially as the cost of living increases.

Though there are some downsides that come with high interest savings accounts, there are also a lot of benefits. As long as you use the account correctly - for example, staying within the withdrawal limits and avoiding making too many transactions - these accounts are an effective way to get the most out of your savings, especially if you are planning to save money over a long period of time. You can deposit your money, knowing that it’s safe and earning interest without any input from you. All you need to do is add to it as and when you can.

At IQ Money, we know how confusing it can be to choose the right savings account for you. But, we are here to help. With our knowledge and experience, and our insight into the best interest rates available, you’ll have everything you need to find the perfect savings account for your investment.