Savings Accounts: a quick guide
Is your piggy bank starting to get full?
You want to make the most of your savings and comparethemarket.com is here to help you find some of the best deals on the market today to help you take care of your savings.
How do savings accounts work?
Storing money under your mattress is not always the best way to care for your savings, investing in a savings account can allow you to earn money on your savings. There are a variety of different types of accounts you can use and different payment options, whether you deposit a lump sum or pay a monthly standing order or direct debit. You choose how much you want to save from £1 to £30k. Whether it’s with an easy access account, a fixed term or fixed rate, flexible saver, or a premium bond, an exception is with an ISA which is limited to the amount of money you can put into it annually.
Types of savings accounts
Savings Accounts
You can get a savings account to run along side your bank account which means you could gain access to your money immediately if you find yourself short. Although they do not have the best rates available, if your income is unpredictable this type of savings account could avoid you waiting for cheques to clear and missing payments in your current account.
Regular savings accounts which offer good interest rates will have a number of requirements and conditions if regular instalments are not met or withdrawals are made. Each provider is different and it is always advisable to make sure you check the terms and conditions before opening the account. To benefit from a regular savings account, you will need to commit to depositing a certain amount every month.
Fixed Term Bonds
Fixed term bonds enable you to make a cash deposit of money into an account that has a higher interest rate which will accrue interest until the fixed term expires. A fixed rate bond will generally have a notice period, if you withdraw any money within that period you could incur a penalty. There will typically be a minimum amount to deposit, the more money you can deposit, the more money you will accrue in interest. If you are confident that you will not need the money and want to remove the temptation of spending it, a bond or fixed term savings account could be your best option.
Tax Free Savings
ISA’s or individual savings accounts are one of the most popular and well known tax free investments where you can pay a certain amount monthly or annually, up to £3600 per year and earn interest without any tax on it. ISA’s are an easy and popular way to save. You can deposit anything between £1 per month to depositing the maximum annual amount. ISA’s are tax free savings and only one account can be open per person at one time. Terms and conditions may apply. In most cases they are easier to access than notice savings accounts and because of the tax exemption can work out more rewarding than average savings accounts.
Interest Rates
Depending on the type of savings you have depends upon the rate, generally the more money you can deposit into an account, the higher the interest rate. Higher interest rates are typically available for bonds that require a minimum cash deposit.
The cash ISA’s which allow you to budget your savings can offer competitive rates as well as flexi savers and saving accounts.
Because there are so many products available all with individual requirements and interest rates, has never been more important to compare savings accounts, so you can make sure that you find the best deals for you and some of the best rates available.
Early withdrawal charges
Some accounts will apply an early withdrawal penalty if you wish to withdraw from your savings within a set time limit. Typically ISA’s and fixed rate bonds can carry an early withdrawal charge from anything between 1-10 years from taking the account out. The amount of the charge is typically a percentage of the total savings.
Compare Savings Accounts
Comparing savings accounts enables you as a customer to search the market in seconds to find some of the best deals available for you.
Make sure you make the most of your savings and compare savings accounts to find the best deal for you.
Definitions:
AER - Annual Equivalent Rate - this illustrates what the interest rate would be if interest was paid and compounded each year. This allows individuals to compare more easily what return they can expect from their savings over time.
ISA - There are two types of ISA, a cash ISA and a Stocks and Shares ISA. The maximum amount you can pay into an ISA is £7,200 per tax year. Of this total, up to £3,600 per tax year could go into a cash ISA and the remaining balance into a stocks and shares ISA. Alternatively you could invest the full £7,200 into a Stocks and Shares ISA. The following table shows how your allowance could be used. Terms and conditions may apply.
Tax Free Savings - Individual Savings Accounts (ISAs) are tax-free savings accounts which means you do not have to declare any income from them. They were introduced in 1999 to replace PEPS and TESSAs. You can use an ISA to save cash, or invest in stocks and shares.
Information comes from published advice from the Inland Revenue.