While high interest savings accounts can earn you loads of free money each year there are a few risks associated with putting your savings in them. These small risks are easily avoided though and so in general the higher the interest rate the better the account. But what are the ‘small risks’ we talk about and how about the rewards?

The Risks
Firstly, most high interest savings accounts have an introductory offer – which is why their rates are so high. Once this offer runs out (normally after 12 months) the interest rate falls dramatically and you’ll find yourself earning an abysmally small amount. In addition, in order to qualify for the higher than normal rate you are often required to deposit a minimum amount each month and if you don’t then you forfeit your lovely interest. So, apart from the risk that your interest rate will drop suddenly without you knowing about it there is also the risk that you fail to deposit enough and end up with nothing for that month. To combat these problems you need to make a note of the date that any introductory offer ends so you can shop round for another new account before the rate falls and choose an account that allows you to stipulate how much you save each month – but make the amount affordable so you don’t end up loosing out.

Secondly, a lot of the top high interest rate accounts ask you to give them notice when you want to make a withdrawal. If you fail to do this then they can penalise you by deducting an amount of interest from your annual payment that is equivalent to the amount you would have earned during the notice period. With a 90 day notice account this can be a good chunk of interest but if you desperately need your savings back then there is no other option but to loose out. To combat this risk you should only use these high interest accounts if you know 100% that you aren’t going to need the money back in a hurry. If you think you might need an emergency fund then you can always set up another savings account that has instant access and where you can keep a bit of spare money for a crisis.

The Rewards
Once you have eliminated the risks you can look forward to the rewards – the main one of which is of course free money in the form of interest. You should always shop around for the best interest rates and the BUYability comparison engine will quickly help you to do this. Remember though that if the interest rate on offer is a special promotion then you will have to do the same shopping around again next year, but that’s something to think about in 12 months time.

Opening a mini ISA allows you to save up £3600 each year and any interest you earn is totally tax free. This of course is another reward and everyone should take full advantage of this small bonus. Recently the interest rates on ISAs have started to increase again and while there are higher interest rates available from other types of accounts these aren’t tax free – so you may end up worse off in the long run.

So in summary, you should take the time to choose your savings account carefully so you get the best interest rates available without any of the possible drawbacks. Or in other words, remove the risks and enjoy the rewards.