There are so many different savings accounts on the market today and it can sometimes be difficult to decide which one is going to work best for you. There are a number of factors to take into consideration when you are shopping around for a savings account.
If you are a UK tax payer or not will affect your choice, how long you are prepared to put your money away for and how often you will need to have access to your funds all play in role in which account you will need. Here are the different types of accounts that are available, so that you can make an informed choice.
The Cash Isas
You stand a chance of losing between 20% and 40% of the interest you earn with most accounts if you are a UK taxpayer. If you choose to go for a Cash Isas (Individual savings Account), you will not be charged any interest on your money. This is a great place to start off when you want to save money. You need to know that Cash Isas do not always offer clients the best interest rates on the market, but their tax-free status means they are able to provide savers with better returns than standard savings accounts.
To check whether if this applies to you, compare the gross interest rate offered on cash Isa with the net rate you would get from a normal savings account. Keep in mind that pay more tax, the net interest you would get on savings kept in a normal account will be even lower. If you do not pay tax, you will not have to pay any tax on the interest you get from any cash that you save. This means that you do not need to keep your money in an Isa if a regular account offers you a higher gross rate.
Fixed-rate savings accounts offer clients a fixed interest rate on your cash for a set amount of time. They often come with higher interest rates than instant access accounts, notice accounts and regular savings accounts. If you think this might be the best bet for you, look for fixed rate savings from BM savings.
Fixed-rate bonds can extend over one to five years. The longer you are prepared to store your cash away for, the more you will get back.
It could be possible to get your money out of a fixed-rate bond in an emergency, but is most likely that you will be charged penalties for doing it. Keeping your cash in a fixed-rate bond is only ever a good idea if you are 100% sure that you will not need to dip into it.
Many fixed-rate bonds require large initial deposits, which is not great news if you are only starting to save. Some will allow you to invest just one lump sum when you open your account and not allow you to deposit more during the term of the bond. These deals are often not suitable for people who might want to add more to their savings over time.
Regular savings accounts
With these accounts, customers are required to deposit money every month, which is why they are perfect for people who are just starting out. Regular savings accounts might limit you to the amount of withdrawals you can make every year, which means it is not a good choice for emergency savings. A regular savings account is likely to stop you from investing more than a certain amount every month.
If you deposited £1,200 in this account over a year in monthly instalments of £100, you would not be eligible to be paid the headline rate of interest on that full amount. You would get interest on your savings as they build up. This means that you will earn less after the same 12 months than if you had deposited the cash at one time.
This is why, if you have a large amount of money to add with your savings, this type of account is not the best for you. You should open an account with a lower rate that will allow you to invest large amounts in one go. Also, remember to check whether the interest is fixed or variable.
An Instant access savings accounts
These types of savings accounts do what they say – they allow you to take money out quickly and easily. Some of these accounts come with a card that you can use to take out money from any ATM. Some Instant Access Accounts offer over-the-counter withdrawals and a lot allow you to transfer money online, penalty-free. Saving in this type of account makes sense if you think you might need access to your savings sooner than later. You should keep ‘Emergency savings’ in an easy access account so you do not run into problems in a crisis. Some of these accounts offer more immediate withdrawals than others.
If you are operating your account with mobile phone banking or an online-only bank, it is possible that any transactions you make could take a few days to go through. Instant access accounts are normally variable rate deals, even if they offer an introductory deal that stays that way for 12 months. This means that when the12month period has finished, the rate that is paid on your cash could drop. It is advisable that you keep a close eye on the return your instant access savings is earning.
Notice savings accounts
These accounts work differently to instant access deals. With these accounts, you will have to let the provider know in advance when you want to withdraw funds, which means that you do not have access to your money when it suits you.
Some want you let them know what your intentions are 30, 60 or 90 days ahead of time. These accounts are not likely to suit you if you may need to have access to your funds easily. If you do make a withdrawal from this type of account, you are more than likely to lose some of the interest you already earned.
In the past, these types of accounts offered much higher interest rates than instant access deals, but this is no the way it works. It is advisable that you check to see if you can get the same return on your money without restricting your access to it.