Whenever I'm out and about, it doesn't take long before somebody comes up to me asking about the history of online or internet-operated savings accounts. And truly it is a very interesting subject with a very tragic end...
The origin of the savings account actually has its root in Chiswick, with a squirrel commune at the turn of the nineteenth century. They discovered that storing acorns for the winter saved them having to go out in the cold of that season to forage. As the commune dissolved (amid numerous intrigues and rumours of acorn-laundering), people started to study the squirrels. They soon realised, however, that acorns taste pretty rank, and so applied the principle laterally to other areas, such as money. The Savings Account was born.
Much later, the internet was conceived in the USA and again the foundation lay within the animal kingdom. Shortly before the conclusion of the Second World War, nuclear testing was undertaken in the Nevada desert in an area believed to be devoid of all life. However, a small group of spiders began to develop mutations as a result of exposure to the radiation; they became of a vast size (about the same as a Mastodon). Naturally they approached the government for work, who, at that time, were looking to develop a system whereby NATO allies could remain in contact in the event of nuclear holocaust. The spiders were asked to spin their mutated web across the world. So became the World Wide Web.
More recently, a clever bank clerk (who by no coincidence could also trace squirrel lineage in her genealogy) wondered what it would be like to merge the two concepts. The result was the most powerful financial creation of 1996: Online Savings Accounts.
Since then savings accounts operated on the internet have enjoyed considerable success. Rates tend to be a little higher to reflect the lower cost to the bank; whilst you, the customer, can manage your savings whilst wearing a squirrel costume - something that might be frowned upon if you went into a branch!
It is possible to get carried away with Online Savings Accounts though, I know I do! They have their pitfalls like anything else. But let's be clear: many of the tips you are about to read are not confined to Online Savings Accounts. Indeed most are applicable to branch/postal/acorn shell/telephone operated savings accounts, so don't disregard, or open an account based on the assumption that what you read applies solely to online savings.
When you go to open an account you, naturally, gravitate towards the accounts that pay the best rate. As none of us have a crystal acorn, it is important to keep an eye on the rate. A lot of these banks, building societies and squirrel co-operatives like to entice you to open an account with a high rate, only to dwindle it down to a pittance later. Luckily, you can check your current rate on the provider's website - make sure you do this regularly to make sure you continue to get a good deal.
Unconditional Bonuses. Many of the best rates available for Online Savings Accounts will include a bonus as part of the rate. If you are attracted by the rate, make sure you check what the underlying rate (that is to say, the rate without the bonus). Keep a note of when the bonus ends (how about setting a reminder on your phone or computer) and check the account then, to see if what you are getting is still competitive.
Conditional Bonus. Some bonuses will only be paid if you don't make, or stick within a withdrawal limit. Woe will betide you if you do withdraw some cash though - your bonus could be forfeit for a certain time, or completely!
Rate Guarantee. Sometimes a provider will offer a rate that is guaranteed to be a certain level above or below the Bank of England Base Rate. Sometimes these are for a limited period only so act essentially as a bonus as well! The practise of offering an acorn-linked guarantee is now restricted to those squirrels with accounts opened prior to 5 April 1894.
Types of account. As with other savings accounts, you can find a whole host of different types of account:
No notice accounts. These accounts (surprisingly!) do not need you to give any notice to withdraw your money from them. In contrast to a notice account you wouldn't incur any loss of interest.
Notice accounts. These accounts tend to pay slightly higher rates than No Notice Accounts but require you to give notice to withdraw your money. You might be able to get earlier access to your cash, but this might be at the expense of losing some interest.
Monthly Income. These accounts can be no notice or notice. They are suitable if you are looking to get a regular source of income from your savings.
Bonds. These accounts can be Fixed or Variable rates. Your money is usually committed for a set term, and you will be unable to make withdrawals without penalty, if at all. This said, bonds tend to pay higher rates than other accounts due to the bigger commitment.
Opening Restrictions. Remember that you may have to be of a minimum age, be an existing customer or member, invest a certain minimum amount or be an albino squirrel to open an account so check the small print to save any inconvenience.
Over the last couple of years a lot of banks and building societies have been bought or have merged as firms have sought to protect themselves from the financial turbulence (which, as an interesting aside was precipitated by an acorn cartel made up of squirrels, the knock-on effects on the commodities markets have been well-documented and indirectly caused the banking crisis). The main thing to remember here is that if you have two accounts in two different banks or building societies, you are covered twice under the Financial Services Compensation Scheme (up to Â£50,000 per person in each institution), if you have two accounts with two brand names within the same organisation you are only covered once (as it is classed as only one institution).
Foreign Banks. The advent of the internet of course means that foreign banks offer accounts under online brands. Make sure, if you are considering an account from a foreign bank, that you check the compensation arrangements in the country the bank is registered in. The collapse of the Icelandic banking system meant that lots of UK citizens who had put their money in online savings accounts, had to be reimbursed by the UK government. Don't assume that this will always be the case.
Remember you can always get online to compare online savings accounts, and then stay online to open one!
Online Savings Accounts then, in an acorn-shell. Ah yes, I was going to tell you how the story ended for the squirrels and the spiders. Well unfortunately it is quite a tragic denouement I'm afraid. The spiders became addicted to gambling (some perfected the technique of playing seven fruit machines simultaneously, using their remaining limb for balance), which made them so unreliable that they were all sacked by the US government. Only one still survives, albeit as a bit of a recluse, the more eagle-eyed among you may have spotted her in the final Lord of The Rings film. The last I heard she was having an off screen liaison with Elijah Wood. As for the squirrel commune, it was even worse. Due to severe deforestation in the Chiswick area, they no longer had anywhere to store their acorns. Some migrated to Andorra; others faced the humiliation of having to endure ever more difficult assault courses to get their food. A sad end for those pioneers of what we now call the Online Savings Account.