Finding the best savings account
Despite the title of this article, there is no such thing as ‘the best savings account’ because it is not as simple as one account with a great headline rate that’s best for all. But the good news is that it is possible to find the best savings account to suit you.Firstly, you need to determine what it is that you’re looking for. With the thousands of savings accounts on the market, it may be helpful to break them down into a more manageable number of 5: the number of main types of savings account available:
Let’s take a look at each one and their key benefits.
regular savings account
As it sounds, with a regular savings account you need to save money – normally a set amount – on a regular basis. If you can afford to save a fixed amount each month, then your savings will grow quite quickly with this type of account, plus the interest rates offered are often amongst the highest on the market. Another key advantage is that regular savings accounts tend to be variable, meaning that if the base rate increases then your interest rate will increase.
There are normally restrictions, however, although these will need to be checked with the savings account provider as they do vary. You may find that you are not allowed to put down a lump sum when you open the account or thereafter, and there may well be a minimum and maximum amount that you are allowed to deposit each month. In order to achieve the highest interest rates, you may find that there are certain restrictions: you need to make a minimum amount of deposits or a limited amount of withdrawals, for example. The amount of access you have to your savings will vary also, although typically it tends to be instant access.
If you are able to commit to a monthly savings amount and agree with a specific account’s restrictions, then a regular savings account could well be for you.
A bond or term savings account normally offers a very attractive interest rate – with the added benefit of it often being fixed for the duration of the account. In return, it asks that you tie your money up for a specific period of time – often between 1 to 5 years. Usually, once you have opened the account you are not allowed to add to your deposit nor are you allowed to access it to make a withdrawal (if allowed, there may well be a penalty). Normally, the interest rate will be fixed for the duration of the account.
A bond or term savings account could suit you if you have some spare money that you do not mind tying up for a set period.
The idea with notice savings accounts is that you get a good interest rate in return for giving the Provider a pre-arranged period of notice – often 30 to 60 days’ notice – when you wish to make a withdrawal. Interest rates are normally higher with a notice savings account than with an easy access account (see below), although with increased competition in the marketplace you can now get some easy access accounts with similar rates to notice savings accounts. So, again – it’s about considering what suits you.
You may be able to gain instant access – at a cost. For example, you may find that you lose interest on the amount withdrawn depending on the amount of notice you were supposed to give – ie you lose 30 days interest on the amount withdrawn if you were supposed to give 30 days notice.
So if you wish to secure a competitive rate and don’t mind having to give notice for withdrawals – which has the added benefit of preventing you from making impulsive withdrawals – then a notice savings account could be the best savings account for you.
easy access, instant access – no notice savings account
For many people, being able to instantly access their savings not only is the most convenient but is the most sensible option for them. And as we said above, it’s not necessarily the case any more that you will be penalised with a lower interest rate for the privilege of instant access so it’s worth shopping around.
With easy or instant access accounts, you can tap into your funds without giving notice or paying a penalty. There are also normally fewer restrictions than apply with say, a regular savings account. For example, you may find that you can open the account with £1 – a great bonus for those who are just starting out in the world of savings, and who may wish to access their savings regularly.
However, if you do not wish necessarily to be constantly touching your savings, then you may find that you can benefit from incentive schemes attached to the account, so it’s worth checking this out. For example, you may be entitled to a higher interest rate if you make fewer withdrawals.
Is an instant access savings account for you? If you do not have much in the way of funds and/or wish to be able to access your account as you like then the answer may well be ‘yes’.
From 6 april 2008 Mini cash ISAs, TESSA-only ISAs (TOISAs) and the cash component of a maxi ISA automatically become cash ISAs, and fall under the umbrella of tax-free savings accounts. The Government restricts how much can be invested each year into tax-free savings accounts. From 6th April 2008, the overall subscription limit for an ISA has increased to £7,200, of which up to £3,600 can be subscribed to a Cash ISA
With a tax-free savings account, obviously the largest benefit is that your savings will be free from income and capital gains tax - plus interest rates tend to be as good as any of the above savings accounts. But you can only open one cash ISA account each financial year, plus if you have more to invest than the permitted amount then you will have to wait until the next year or invest elsewhere.
If you wish to save a smaller amount - ie up to the permitted annual maximum, then opting for a tax-free savings account could well be the best choice for you.
What next?
Here’s a couple key points to bear in mind when shopping for the best savings account:
Don’t get stung by the small print: read it first. You may find that an attractive headline rate only applies for a limited period, after which it’s not so attractive. Also check the restrictions carefully. If a penalty of no interest applies when you make a withdrawal, for example, then you won’t want to save any money in the first place because the more you have to lose by withdrawing it. Think it all through.
How do you like to do business? Do you like to speak to someone in person, or do you like to go online? If it’s the latter, then you may find that you are able to access the most competitive rates on the market.
And it doesn’t stop there. Even if you have found the best savings account, still shop around and be prepared to switch if something better comes along. Click here to sign up for our mailing list to be informed when our leading best buy products become available.
Useful links:
National Savings and Investments (NS&I)
The UK state-owned savings bank
http://www.nsandi.com/
HM Treasury
Her Majesty’s Treasury: read about the Budget, the Treasury’s financial and economic policies, public spending and services, and the UK economy.
http://www.hm-treasury.gov.uk/
Office Of National Statistics
The home of official UK statistics, obtain data free of charge on a range of subjects including Britain’s economy, population and society.
http://www.statistics.gov.uk/