Tuesday 15 February 2011

Get an Online High Yield Savings Account

One of the core tools of the DIY Income Investor is an online savings account (or accounts - you may have more than one, with different maturities). The savings account acts as a kind of financial bridge between your online current account (used for everyday expenses) and your online brokerage account (used for your longer-term investment strategy).
There are two main types:
  • an 'easy access' high interest account, where cash is usually immediately available
  • a fixed-term saving account (or 'bond', in UK), where you must either give notice or wait until the maturity date of the bond (or lose some or all of the accrued interest)
This account has two main purposes:
  • To accumulate cash for another level of income investment in the Income Pyramid
  • To create a substantial 'buffer' of cash to cover large family emergencies or large purchases
Sometimes it make sense to hold a lot of cash, rather than invest it in the stock market.

Because this strategy is all about income, you will want the highest rate of interest you can get (subject to the length of time you can keep your money tied up. This will require some DIY research, because the rates on offer change almost daily. (Savers lose £500m by ignoring fixed bonds)

Key factors to consider:
  • how long do your want to tie up your cash?
  • is your deposit safe (i.e. what guarantees are there in case of failure of the bank or financial institution)

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

1 comment:

  1. I have to agree with you. This ultimately helps you save money, as the bank is able to offer you a higher interest rate on your savings or another incentive for your new account. Your total balance will grow more quickly when you find a high-yield savings account.