Thursday, 28 April 2011

Choosing a New 'Easy Access' Bank Account (UK)

You may recall that having a chunk of cash in a high-interest but easy-access bank account is part of Level 2 of the DIY Income Investor Income Pyramid. Keeping an 'emergency fund' available to deal with unexpected large expenditure items is good planning - but you want to make sure that the money is working hard and generating as much income as possible. Keeping this 'easy access' account allows you to tie up any further spare cash in a deposit account with - hopefully - an even higher rate of interest (Level 3).

My (or should I say my tax-free spouse's) one-year deal with ING is coming to an end - so I need to find a replacement. I though it would be helpful to share the process with you...

This process always reminds me of the old-fashioned fun-fair carousel - where the wooden horses go up and down on poles whilst the whole carousel spins around. The banks are the horses and their rates go up and down. The trick in this 'savings carousel' is to keep changing horses, so that you stay as high in the air as you can!

As for the whole DIY Income Investor approach, you should be looking for an online account (usually linked to your main current/checking account) - because it makes the task of moving cash around so easy.

The best deals change pretty quickly, so a first stop is Moneysupermarket.com's  Easy Access Account page, followed by Moneyfacts.co.uk's instant-access account page and introductory rate page. Finally it is always worth seeing what MoneySavingExpert.co.uk has to say.

The top-paying rates are all currently (end April 2011) around 3% (including Northern Rock and Nationwide), which is pretty good, compared with the current deposit account rates for one year. However, nearly all the accounts are limited to 12 months, with either an introductory bonus or a switch to a lower-rate account after than. That means going through a similar process in a year.

ING is offering 3% but this rate is only for new customers, so there is no possibility to roll over the account. Their loss! No way am I going to leave our money at their standard rubbish 0.5% interest rate! We have actually been through this process once before with ING. This illustrates one lesson - you have to be prepared to move, otherwise you will end up with rubbish interest rates!

Birmingham Midshires is offering an account at 2.75% (eSaver Account, Issue 2), although this rate is not described as 'fixed' and therefore is not guaranteed for any period. We have an existing account there that we ran down when the interest rate was reduced a couple of years ago (deja vu, all over again). Although it is not the best rate available, transferring money there would be easy, as both the accounts are online and are linked to my spouse's current account.

The alternative would be to open yet another bank account.

I'll sleep on it.



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.

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