Whilst having a savings account is a great idea, there are so many different varieties of account available and choosing the right one can be puzzling. However, there will be a few factors that will have some impact on which type of account you choose including whether you want to have instant access to the cash or if you are prepared to have it locked away for a certain period. To get you started, here is a brief guide to the various accounts on offer.
The essence of a regular savings account is that they require you to pay in a certain amount each and every month. However, there may be a restriction on how much this can be. Therefore, whilst the interest rates may be relatively attractive, if you are planning on investing large amounts into an account, a regular savings account is not ideal. In addition, a regular savings account will generally restrict the number of withdrawals each year.
Instant Access Account
If you prefer to have an account that allows you instant access to your savings, you should opt for an account that does just that and open an instant access savings account. This type of account will not only allow you to draw out money when you want but, more often than not, it will also make this a relatively easy task.
Most accounts will provide you with a plastic card, which whilst not allowing you to purchase goods with it, will allow you to withdraw cash from ATMs. In addition, many will allow you to make over the counter withdrawals or to transfer the money to another account online, free of charge. However, with some accounts, transfers may take two or three days to clear whilst others may limit the number of withdrawals you can make each year.
Cash ISAs, or Individual Savings Accounts, are ideal for anyone who is a UK taxpayer. This is because this type of account offers tax-free interest. This could make a huge difference because, in general, you can expect to lose between 20 and 40% of your savings in tax with an account that doesn’t include this aspect.
Whilst the interest rates may not appear so attractive at first sight, the fact that they are tax-free means you could end up with more interest earned in the long run. To check whether you will end up better off with an ISA, compare their before tax interest rate with the ‘after tax’ interest rate of a standard account. It should be noted, however, that at present, you can put no more than £5,640 a year into an ISA account.
Notice Savings Account
Quite simply, this account works just as it sounds. In other words, in order to withdraw money, you will have to give your bank notice. This can be anything between 30 and 90 days, so if you feel you may need the money in an emergency this is not the account for you. Furthermore, in general, this type of account no longer offers a higher rate of interest.
With these bonds, whilst you will generally earn higher interest, your money will essentially be tied up for the entire period of the bond. This can be between one and five years. The longer period you opt for, the higher rates you will get. This is ideal for anyone who is confident they will not need the money in an emergency but risky for others as any decision to withdraw will incur a pretty hefty fine.
This guest post was written by Francesca, who lives in the UK and has an interest in personal finance and money matters. She writes for IVA experts.