Whilst competitive rates of interest on savings is clearly good news for the consumer, however, it has also brought about a bewildering proliferation of different types of account. The same newspaper report says that in the past year, the number of savings accounts offering rates that are subject to variation has risen from more than 900 to more than 1,000, while the number of accounts offering a fixed rate of interest has gone up from 394 to 426. Almost all of the newcomers are online savings accounts.



The reason for the upsurge in online savings accounts is two-fold and fairly plain to see. It affords the banks and building societies probably the biggest market place in which to display their wares and online accounts are also cheaper for them to manage and service than from costly premises on the high street.

But these very reasons also give consumers an attractive incentive for opening online savings accounts – the rate of return on the savings should be better. Online savings should deliver an enhanced rate of return because of the competition between different deposit-takers and through the latter's reduced costs being passed on to the saver.

In addition to the relatively improved rate of interest, moreover, the online saver also has the considerable convenience of monitoring and managing the savings account around the clock, from the comfort of their own home computer. Given the way in which the current encryption technology is also staying one step ahead of potential fraudsters and other criminals, online banking can also offer a high degree of security and peace of mind.

Although online savings offer an attractive rate of interest, convenience and security, however, there are a few additional points that potential savers should take into consideration whether saving online or, indeed, more conventionally.

Conventionally at least, the best interest rate on a savings account has been the result of a trade-off against access to the save funds and the flexibility of withdrawals. Banks and building societies have then tended to muddy these waters and made the possibility of straight forward comparison between interest rates all the more difficult by imposing penalties for instant access withdrawals or "bonus" rates for those who leave the savings untouched.

When looking for an online savings account, therefore, savers might be well advised to keep a particular eye open for those with "no strings" attached – that is to say, instant access accounts that offer the same rate of interest whether you deposit the same amount each month, whether it is a small deposit or a large one, where there is no headline-distorting bonus rate and where there are no penalties for withdrawals. With such simple, no-nonsense online savings accounts like this, the banks and building societies could find themselves attracting even more savers than the current high tide they are enjoying.