The Pros and Cons of Fixed Interest Saving Accounts

Fixed interest rates are what the banks normally give especially in savings accounts. In most cases, such rates would normally range from 0.75 percent to as high as two percent annually. If the amount of deposit is huge (normally in millions), the interest may go higher to 3.5 percent or even four percent annually. However, are these fixed interest rate savings accounts really worth it? Let’s find out.

First, let’s see the advantages of these kinds of savings accounts:

1.) With fixed interest rate accounts, you exactly know how much your money would be growing. There is the ease in computing.

2.) Such accounts are readily accessible compared to other accounts. Time deposits normally have holding periods that last for at least a year. The higher the interest rate, the longer the holding period usually. Savings accounts are also easy to access online. You can transfer your funds or pay bills online. Other kinds of accounts are quite complicated in terms of accessibility (maybe aside from online accounts).

3.) Because fixed interest savings accounts are the most common and probably the most basic bank accounts, there is relative ease in opening, closing, adjusting and transferring of accounts. Requirements are minimal, maintaining balance is minimal and complications are lower.

Here are some disadvantages of fixed income savings accounts:

1.) The interest rates are normally low compared to other accounts. If you have a bulk of your money in savings accounts, you’re in the losing end. Inflation rate will eat up the value of your money.

2.) In contrary to what most people think, savings accounts are not investments. Many people fall into this trap by making their bank accounts as their investments. Even in a bad market, fixed interest rate savings accounts perform less than bonds, mutual funds particularly bond and balanced funds, and even some stocks.

3.) Too much diversification. Since savings accounts are normally required for different transactions, there is a tendency to open lots of savings accounts and you may lose track of some. This is a little more of discipline and management issue but still this is an issue with savings accounts.

4.) The flexibility of these savings accounts can backfire. Most savings accounts have debit cards along with them which you can use in purchasing. Debit cards can be used like credit cards, the only difference is that if you no longer have funds, you can no longer use them.

Opening and using a fixed interest rate savings account must be done in accordance to its purpose, for safekeeping and business transactions. It can be used for safe keeping because it is readily accessible and it can be used in case of emergency. It is also for business transactions because of the convenience that it offers, especially online banking. Knowing these purposes can make you maximize your savings account. If not, it can work against you.