1. Introductory bonus offers and rates:
High temporary rates are offered to entice new customers to switch banks. These are good accounts to choose if you remember to switch to another account when the offer has finished.2. Confusing names:
Most of the banks give their accounts slightly similar names. It’s easy for them to try and sway a non-savvy consumer on to similar sounding account – make sure you know what specific account you want.3. Comparisons:
When weighing up different bank accounts make sure you are comparing like with like. If you are only going to be investing a small amount of money in the account, there is no point in relying on a bank's advertising which is showing the interest for balances over £10,000.4. Different interest rates – there are two different interest rates which the banks use:
Gross Interest Rate: This is the flat interest rate which you will earn from your bank account over the course of the year. For example if you invested £100 in a 10% interest account, you would have £110 after a year’s saving.
Annual Equivalent Rate (AER): This is the compounded interest which will be earned on an account. Money will grow more quickly because interest is gained on each year’s interest in addition to the initial investment. For example, if you invested £100 in a 10% interest account, after the first year you would have £110. After the second year, you would get interest of 10% again on the £100 plus 10% of the £10 interest gained from the previous year. Meaning you would have a total of £121 after two years.5. Tax
When opening a savings account no mention is made off the tax which will be taken of the interest. The basic tax rate is around about 20%, while higher earnings are taxed at 40%. If you earn below the taxation amount , make sure the tax charge is removed from your saving account.6. Unknown Banks
If you are unsure of a bank's credibility, or don’t recognize the banks name, fsa.gov.uk has information on all banks and details unauthorized bank accounts.
