Choosing the right account
There are many different types of savings accounts out there and the choice can be quite daunting. Here are some on the main types, and also where you can go to find the right account for you.
What are the main savings accounts?
Here are some on the main types of savings accounts:
Easy access accounts
Also known as instant access accounts, these allow you to take your money out at any time.
You usually only need a small amount of money to open one (some start with just £1) and you have access to your savings whenever you need it, so they’re a great place to keep your emergency funds.
Typically you receive low interest rates with easy access accounts.
You usually need to give the account provider advance notice before you can take your money out. This can range from around 30 to 120 days.
Notice accounts tend to have higher interest rates than easy access accounts.
However, withdrawing money before the notice period could lose you interest and you might also need to deposit a higher amount to open a notice saving account.
You usually have to commit to depositing into a regular savings account every month for an agreed period of time.
The upside is you could receive higher interest rates. To receive the higher interest rate, you must deposit regularly or face losing it. You might also be limited to the amount of times you can withdraw money from these accounts.
Fixed rate accounts
These accounts are also called fixed rate bonds and you need to deposit a single lump sum for a set period of time, which could be anything from one year to five years, or even longer.
Usually a guaranteed fixed interest rate is applied so you know exactly how much interest you’ll earn over the term.
You’ll be unable to make withdrawals until the fixed term is up. However, if you do decide to withdraw, you will lose some of the interest and may have other penalties to pay.
Individual Savings Accounts (ISAs)
These work exactly the same as other savings accounts, except that ISAs allow you to save without tax being deducted. There are different types of ISAs, including easy access ISAs, fixed rate ISAs and stocks and shares ISAs. Your savings are tax free and you can make regular payments or one-off lump sum deposits which don’t affect the interest rate you’re paid.
There’s a limit to the amount you can save in each tax year, which is currently £20,000 per person.
The Lifetime ISA could really help you save for your first home, as you get a Government bonus of 25% of the amount saved when you use it for house purchase.
You can also save for later in life, as you can withdraw your money together with the 25% bonus, once you are aged 60.
However if you withdraw your money from a LISA for any other reason you don’t get the Government bonus, and you will have to pay a penalty.
There is a £4,000 a year limit to how much you can save in a Lifetime ISA, and you must be aged under 40 to open an account.
Find out more information here.
Help to Save
If you are on certain Tax Credits or Universal Credit you may be eligible for Help to Save. If so and you are able to save, it might be your best option, because for every pound you save the Government gives you a bonus of 50p.
Accounts are open for four years and you can save up to £50 a month.
Find out more information here.