In addition to the various types of savings accounts, there are also numerous banks and building societies to choose from. With so many options and variety, it can be difficult deciding which is best for you.
However, the following advice should help you pick the right savings account, which will hopefully provide an invaluable rainy day fund or financial nest egg for the future.
Establish a savings goal
First and foremost, ask yourself some questions relating to a savings goal. What do you want from your savings? How much do you need to save and when do you want a return?
If you want to save a specific amount before a certain date for say a family member’s birthday or Christmas presents, it is easier to narrow down your options. But if you are fairly flexible with time and returns, there will be fewer restrictions and potentially higher gains.
Think about fixed-term deposits
There is the potential to earn more interest with a regular savings account, fixed-term deposit or savings bond if you’re able to set up a standing order and tie up money for a specific amount of time.
The only problem with this type of savings account is that accessing money might not be possible, so you’ll need to make sure you can cope without. If you desperately need to take money out, there could be a hefty withdrawal fee too.
Take an active role with savings
As soon as some people deposit money in their savings account, they won’t have anything to do with it until the time comes to withdraw. But if you have an active role with your savings, greater returns can be achieved.
For example, some accounts offer a high bonus rate to tempt you in, but will inevitably be removed after a certain period of time. When this occurs, you can switch to another deal with equally as good interest. Savers that don’t have time to do this should look at accounts with a historically stable rate.
Know your tax
Individuals that don’t pay income tax can ask to have their account interest paid gross, otherwise deductions will be made automatically. But there are still various options available for those that do pay tax.
For example, you can earn interest tax-free in a cash ISA, which now has a limit of £15,000 a year. Although Stocks and Shares ISAs also have a few tax advantages, make sure the benefits aren’t cancelled out by lower returns.
Know your limits
In today’s precarious economic climate, it is reassuring to know that the Financial Services Compensation Scheme will protect the cash you put into authorised banks and building societies.
However, this is limited to £85,000 per person in any one authorised firm. Some banks and building societies have brands that come under the umbrella of a bigger authorised firm, so make sure your money is spread out in the right places to protect assets.
Keep this advice in mind and you can reap the rewards a savings account can bring.