How to get a higher interest rate for your bank savings
Zero interest rates have a significant impact on people’s savings, pensions and investment yields. This article explains how you can act now to get the highest interest rate possible for your savings.
Consider the concept of a bank paying negative interest: borrowers get rewarded while savers get penalized, having to pay banks to hold their money. In this upside-down scenario, many question if such a strategy won’t push savers to stuff money under their mattress. How else can you possibly make the most of your savings? Savings expert Raisin explains how.
How to get the most out of your savings
Today we all live in this new reality of negative interest rates, as central banks around Europe have been lowering reference interest rates into negative figures these last years, a strategy designed to spur lending, inflation and economic activity in the crisis-hit European Union. By mid-2016, some 500 million people in a quarter of the world economy were exposed to negative rates. Yields also fell into negative figures on government bonds worldwide, meaning investors are accepting to lose money on their deposits in order to invest in a secure investment.
Savings and bank deposits comprise a significant portion of financial assets of European residents — who hold more than EUR 10 trillion in current and savings accounts — yet the returns European savers receive today from their banks is barely enough to cover inflation. While many banks are not yet passing on negative rates to their retail customers, quite a few institutional investors are receiving zero percent or negative returns on bonds and bank deposits.
However, there are ways savers can protect their deposits and investments from low interest rates by taking a more active approach on their savings.
In today’s digitised and online environment, there are several ways to get higher interest rates on your savings. Specialised providers now allow savers anywhere in the world to transfer money and invest abroad, with nothing more than a computer and internet connection, specifically catered to help savers get higher interest than what they receive on their bank deposits at home.
There are many deposit products and investments to choose from. How can you make sure you get the highest interest rate possible on your savings?
4 ways to earn the best interest rates
1. Compare interest rates both nationally and internationally
Interest rates vary greatly between financial providers in your own country, and it is worth shopping around to get the best interest rates and services for your savings.
Even larger differences can exist when also looking at banks in other countries. With the rise of online banking and distant identification, investing abroad is no longer a difficult or inaccessible option.
2. Lock-in interest rates through longer-term deposits
If you have savings you can afford to leave untouched for a fixed length of time, fixed-term deposits can be a secure way to invest your money.
In exchange for leaving your money with a financial institution for a fixed amount of time, you will receive a fixed interest rate. What rate you receive usually varies based on the term of your investment; typically, the fixed terms can range from as little as one month up to a few years. Investing in a term deposit involves limited risk because the payment of interest is not tied to any business growth, as is the case for stocks.
The benefit of fixing a rate for a pre-determined term is that you know exactly what your investment will be worth upon maturity, and you avoid fluctuations. Products such as fixed-term deposits are one way to secure a fixed yield, but they also usually have strict policies if you withdraw or break your deposit before maturity.
When you terminate a deposit prematurely, you usually must pay a penalty or lose your interest – and in some cases you will not be able to access your money before the agreed-upon maturity at all.
For this reason, savers and investors should consider how to secure their deposits against future financial uncertainty, as explained in the next point.
3. Avoid penalties by choosing savings products with features that secure the highest interest rate yet allow for flexibility
It is important to be aware of the details of your chosen investment product, as breaking the terms of any contract can potentially mean losing part or all of the accrued interest. Additionally, there could even be penalty fees meaning you could even end up with less money than you started with.
But banks are increasingly focused on offering products with special features for investors who want flexibility. One such feature includes breakable term deposits, which allow you to withdraw your money at anytime without penalty fees. Savers can freely withdraw funds in case of an emergency financial situation or even to take advantage of better interest rates offered elsewhere, sometimes even receiving part of the accrued interest.
There are also overnight deposits, which have a maturity of one day and typically higher interest rates than those offered on current accounts.
Looking for the highest interest rate possible, therefore, may not be the only decisive factor if you envisage potential changes in your future financial situation.
4. Make sure your deposits are covered by a guarantee scheme
The financial crisis has shown that even well-renowned banks can fail. Before choosing a financial provider or country to invest abroad, it is worthwhile to see what guarantees or protections – if any – are offered to protect your investment.
Across the European Union, for example, harmonised national Deposit Guarantee Schemes (DGS) protect all bank deposits up to EUR 100,000 within member states; the protection limit applies per bank and per customer. In the event of a bank failure, depositors will receive their funds back within 20 days.
Raisin / Expatica
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