FM41 - When is a savings account worth avoiding?

If you're looking for good place to stash your cash, your main priority is likely to be getting a good rate of interest.

But before you go for that market-leading account, make sure you've gone through the small print with a fine-tooth comb. Look out for the following three pitfalls:

Many 'market leading' accounts include introductory bonus rates to entice you in. These bonuses usually increase your overall rate of interest by between 0.5 and 1.5%.

The problem is, the 'bonus' element of the rate is temporary, usually lasting no more than a year. And when it's withdrawn, you're often left with an account paying a low rate of interest.

Not all accounts with bonus rates are worth avoiding, but you do need to keep a close eye on things and make sure you transfer your balance as soon as the rate becomes uncompetitive.

Alternatively, only opt for an account with a bonus rate that is fixed. Certain savings accounts now offer variable-rate introductory bonuses - which mean the provider can reduce your rate at any time.

When you find a savings account with a juicy interest rate, you also need to make sure you're not being sucked into making a commitment to other, linked financial products sold by the provider.

For example, you might see a regular savings account which offers you an impressive fixed rate of x% AER for 12 months. This may seem great to you until you realise that you also need to open a regular investment, pension or protection plan to qualify for the deal. This is a very big commitment just to get a savings rate which expires after a year.

Certain savings accounts penalise you heavily if you make any withdrawals. Most regular savings accounts cut the rate of interest you receive if you touch your money, and some savings bonds force you to close them altogether if you need to access your cash early.

Some of these penalties may seem extreme, but at least they're in keeping with the nature of the accounts. Both regular savings accounts and bonds are designed to lock your money away; and they usually reward you will a healthy interest rate in return.

The worst thing is when accounts claim to be 'easy' or 'instant' access - when in fact they're nothing of the sort. In some cases, you'll be penalised heavily for making just one withdrawal!