Opportunities To Save

The positive side of the current mortgage crisis is that banks and other financial institutions are very enthusiastic about attracting new deposits. Rates for savers are more attractive now than they have been for quite some time.

There is no restriction on the number of regular savings plans an individual can maintain, so it is possible to keep several accounts.

If the rates of return are now so appealing, what are the disadvantages of regular savings plans? They are really not so much disadvantages, as points to keep in mind before committing yourself to the plan. Once you have agreed to the amount you wish to deposit each month, that amount must be maintained regularly, for the agreed period of the plan. If you miss a deposit, a penalty is often imposed by a reduction in the rate of interest earned. Most plans also have an upper, maximum limit on the size of the deposit that can be made each month, so the option of adding any unexpected windfall to your savings plan is precluded.

A regular savings plan might be something you wish to consider, but it is not especially flexible. The plans can be short-term and many run for only a year, so it is necessary to decide whether you will be able to maintain the commitment to regular monthly savings for that period of time. To get the best rate of interest, you should also expect the plan to be relatively inflexible when it comes to accessing your savings during the agreed term. Any withdrawals, for example, can attract penalties in the form of big reductions in the rate of interest applied to the remaining balance.

At the conclusion of the savings plan period, you can withdraw the savings in the account or the proceeds are likely to revert to the bank’s standard savings account, at a significantly lower rate of interest. As a result, you might wish to keep this end date firmly in mind and think about shopping around for another, new regular savings plan if you want to maintain your savings at an attractive rate of interest.

When calculating the actual return you should expect from a regular savings plan, it is important to remember that the total amount being saved is growing slowly on a monthly basis. In the initial months of the plan, the rate of interest is applied to a reasonably small level of savings and it is only towards the end of the plan that the rate is applied to the accumulated savings to date. This seems a quite obvious and direct point to make, but it is nevertheless something that has led to some savers believing that their regular savings plan has failed to deliver all that they had expected.