Choosing the right savings account
If you are looking for somewhere to safeguard your money, a savings account can be the best option - although with such an array of choice, choosing the right one to suit you can be difficult. Not only may you want to compare savings accounts rates, you should also consider the purpose of your savings; for example, will you need instant access to your money?
If you are stowing cash away for future emergencies, an easy access saver may be the best option for you. There are no withdrawal limits and you have the ability to access your money immediately using a cash card. Easy access savers give you flexibility and maximum control over your savings, but as the bank cannot rely on your money to stay put, the interest rates tend to be lower. There are many easy access options suitable for savings for children, often with good rates.
Savings bonds/term accounts can be beneficial if you are looking to secure your money for a fixed period. They offer more competitive rates as your cash is required to be tied up for the agreed term, e.g. three years, and you are guaranteed a return on your savings. There is a fixed interest rate for the duration of the term, but if interest rates rise you won’t benefit. Withdrawal is not usually permitted and penalties such as loss of interest or closure may be incurred if you do so.
If you can commit to depositing regular sums of money every month, a regular saver may be for you. It boasts some of the highest rates, and in some cases a bonus is added annually as an incentive to keep up payments. There is usually a maximum monthly depositary allowance, while you could be subject to penalties if you fail to make a payment; loss of the bonus, for example.
Individual savings accounts (ISAs) mean you can save without tax being deducted from the interest you earn. The tax benefits mean that maximum annual contribution and withdrawal limits apply per tax year. Cash ISAs may not have the best rates, but exclusion from income tax means you may be getting a better return for you money and these may be the best savings accounts for higher rate taxpayers. Easy access ISAs are flexible and if interest rates are higher elsewhere you can move your money easily.
If opening a savings deal for your child, remember that children are subject to the same tax allowance as adults and once the allowance is reached, the same tax rate applies. Currently your child may earn up to £7,475 in interest before paying tax on the excess.
By picking a savings option tailored to your needs, you can gain the highest return. With the interest you earn you could afford, for instance, to treat your family to a stay at a nice hotel. Most importantly, you will be confident that your finances are safe and secure.