Choosing the best savings account for you can be more difficult than it seems at fist glance. As with most things financial, what seems like a simple subject is confused by the amount of different offers available by the different banks. There are a number of factors to consider which will in the end directly affect how much you are able to save. When deciding on a particular savings account, the first thing to do is to decide on which type of savings account suits you. After this, it is a case of choosing which savings account of that type is offering the best deal at the moment.
The main variables in a savings account are centered around how much interest you receive on your savings on one end of the scale, and how easy it is to access your money, and how long you commit to save on the other. The following is a a brief guide to the benefits and pitfalls of the different types of savings accounts.
On the far left of the scale are easy access savings accounts. These types of savings accounts allow you access to your money within a day or two. There are numerous offers being introduced on instant savings accounts, and there are a few tricks that banks use to make the most of your money, Keep an eye out for the following:
-new Savings Accounts with High Interest
Short term high interest schemes are often offered by newly launched savings accounts. This makes them appear at the top of saving accounts league tables. Over time, this higher savings account interest rate is reduced to a normal level
-introductory high interest savings accounts
Taking the cue from credit cards, banks now are offering 6 month and 12 month introductory high interest periods on savings accounts. Again, this will make the account appear in the best savings account tables, but in the long term will not benefit the customer.
-frequency of Interest payments and Penalties
Some banks pay out interest monthly, some yearly. Depending on how you are going to use your savings account will depend on which option you wish to go for. Some banks will cancel interest payments in a month where a withdrawl is made as a penalty.
Offering a higher interest rate than a standard savings accounts, notice based savings accounts stipulate that you must give a certain amount of time notice if you wish to withdraw savings. You are also normally required to keep a certain amount in the account. Should you withdraw money before this time period, a penalty is normally imposed equivalent to the interest you would have accrued that month. Other banks offer bonus schemes if you keep your savings accounts untouched for a year or more.
Many banks offer savings accounts with significantly higher interest rates than standard savings account, provided a regular deposit is made into the account. This is normally limited to a year or so as an introductory offer. In addition, there will be a maximum limit on the monthly deposits and totals, and should you need to withdraw money, it is likely that your interest rate will be switched to a slower standard savings account rate.
Individual Savings Accounts can be divided into a two different types, those being mini Cash ISA and maxi Cash ISA's. Put in basic terms, cash ISA's are similar to building society accounts, where you put money into the ISA, and get interest on it, but don't pay tax. What separates an ISA from a standard savings account is the option of investing the second part of the ISA in stocks and shares. The maximum cash amount you are allowed in both types of ISA per year is £3000, and a maxi cash ISA allows share investment of up to £4000, whilst mini cash ISA allows share investment of up to £7000.
When choosing a cash ISA, the opening deal as well as any long term interest promise are the important things to watch. With ISA's, the bank you are with is liable to change the interest rate at any time, so it is worth keeping a keen eye out on your ISA's. Should your ISA interest rate fall substantially, it is possible to switch ISA's relatively simply and can be worth your while.
There are two types of savings accounts if you are putting money aside for your children, and the child becomes the account holder as long as they are over the age of 7. The advantages are that the child will have their own tax threshold, and supposing the child earns under their tax threshold, no tax will be paid. As well as this, there are child trust funds, which are the equivalent of an ISA for children. The child gains access to the trust fund at the age of 18. The government has introduced schemes for families who claim child benefit whereby children born after 1 September are sent a voucher for £250 towards the trust fund. There are also options to invest in stocks and shares like a standard ISA.