Anna Bowes, co-founder of Savings Champion, shares insights on choosing the right savings account to help your money work harder.
It’s never too early or too late to start saving, but the sooner you can start, the healthier your financial future could be.
Initially it’s getting into the discipline of saving that is the most important – once you have built up a lump sum you can focus on making sure you are getting the best rates.
Regular savings accounts are great products to help get you into the savings habit as they often require a monthly deposit – and if you set up a direct debit just after you are paid, it can become like another bill – but one that you will benefit from in the future. These accounts also pay some of the best rates on the market so it’s a win-win!
Once you have built up a lump sum, it’s time to look for the best type of account for your needs – paying the best rates.
It’s a fact that the high street banks often pay some of the lowest rates on the market, so check out the competition before just leaving it to languish. More importantly, don’t simply leave it in your current account earning nothing. According to the Bank of England, there is some £252 billion sitting in accounts earning no interest! Why should they benefit when you could make your cash work harder.
Before simply picking the best rate you can find, think about what access you might need. Most fixed term bonds do not allow any access to your cash before maturity, so although these bonds can pay more than accessible accounts, if you might need to use the money, you might need to keep some in an easy access account – just in case.
If you know you won’t need access, you could earn more by locking your money away – and doing that sooner rather than later means that you could hedge against any further rate cuts that are expected.
And don’t forget about the ISA allowance, which is £20,000 a year. If you earn interest that breaches the personal savings allowance, you could shelter up to £20,000 each year from the taxman – so you take home all the interest rather than handing some of it over.
In order to find the best rates, check out an independent, whole of market website like savingschampion.co.uk, which will show you the top rates available for each type of savings product.
One word of caution, if it looks to good to be true, make sure you do your homework. Never simply accept information on an email, especially an unsolicited one. Double check that the rate you are being offered appears on that provider’s website – but don’t just click the link in the email. As long as you have found a trusted website to show you the best rates, there is no need to be worried about using a bank or building society that you haven’t heard of. If they are part of the Financial Services Compensation Scheme (FSCS) up to £85,000 will be protected should the worst happen.
