Three things to look out for in high interest rate savings accounts

A high interest savings account can help you grow your funds while not having to worry about losing your money in the process. It is a risk free investment option for any small investor. But the thing is that many savings accounts promise the moon but turn out to be fraudsters when you actually deposit your money in them.

When you see that the interest rate quoted as nominal interest rate is between 3 to 5%, it might seem great but you will have to look at the fine print to understand how you are being swindled. If you are investing money over a long period of time, say over 30 years then even a 0.5% difference in interest rate can make a huge difference. You need to do your research to understand what exactly is happening to your money in the savings bank account. There are three things that you will basically have to look out for.

The penalty fee is the first one. If you go for a high interest rate savings account, you will have to lock in your money for a certain period of time. This is common with bank accounts that require you to pay a minimum deposit. If you do withdraw the money during that period of lock-in, you will end up paying a huge fee in terms of penalty. And this penalty will be very hefty and will result in you not even getting your principle amount back from the bank. You can be charged with a withdrawal fee or a rate penalty or sometimes even both. There are certain banks that allow only a certain number of withdrawals every time period. You must also look into their overdraft charges. Many banks will allow withdrawal and when your account goes negative, you will be charged a huge fee.

Hidden charges are another thing that people fall for all the time. There will always be some sort of fees that will be applied on your account. Sometimes you will not even see it on your statement because the bank will deduct it from the interest rate and you will not be in a position to sit and calculate the interest owed to you by the bank!

Variable rates are another hidden dragon that you need to find in those little words called fine print under terms and conditions. You will be lured with a very high introductory bonus interest rate and when you check your account after six months, you will find that the interest rates have changed to the normal rates.