There are hundreds of Savings Accounts on the market, each with different benefits and bonuses. This article is a guide to what savings accounts are and what benefits would best suit you.

What is a Savings Account?

A Savings Account is a safe way of storing money. It is better than keeping your money under the mattress because in a bank, you will earn interest on the money! A Savings Account is a place where you can deposit money that you won’t need on a day-to-day basis, but can access it fairly easily in the future should you need to. Savings are not to be confused with investments – any money you put into your savings account will always be yours. The amount will always go up (because interest is added). Investments can either gain or lose money.

What’s the point in a Savings Account?

Savings accounts are a great way of saving for the future – either for a purchase, or for a rainy day when money is needed. They generally have better interest rates on them that current accounts so it’s to your advantage to store your long term money in them over your current account. You should not be using your savings account if you have any outstanding debts – the interest on your savings account will be less than the interest on your debts. It is better to pay your debts before you start a savings account because you will end up with more money in the long run.

What types of Savings Account are there?

ISAs (Instant Savings Accounts): ISAs are tax-free and should be the first savings account you go for because the earnings are tax free therefore you will generally get better returns than on other savings accounts because of the lack of tax. ISAs are split into two components – cash, and stocks and shares. The cash part is exactly what is says – a cash savings account, generally held by your bank or building society. The stocks and shares part involve investment funds such as unit trusts, bonds and insurance policies. There is a risk with these that you may lose money rather than gain money.

There are two types of ISA that you can open – the Mini or the Maxi. You can only open one Maxi ISA or two Mini ISAs a year.
The Mini ISA is either a cash or a stocks and share ISA. They are usually used for cash. You can save up to £3,000 in cash in one Mini ISA and £4,000 in stocks & shares in another Mini ISA per year.
The Maxi ISA must have a stocks and shares component and you can invest up to £7,000 in this ISA.

You should try not to withdraw money from an ISA if you can – you are only able to put a certain amount of money in per year. If you withdraw any money from that ISA, you will be unable to put the money back in again. If your ISA rates fall, or you see a better deal, speak to the new lender and they will be able to switch your ISA across. Make sure you do not just withdraw the money as your will forfeit the tax-free element you’ve built up.

Instant/Easy Access: These usually require just £1 to setup. As the name suggests, you have instant access to the account. The interest rate is generally variable so the rate can go up or down. The disadvantage of these savings is that because of the easy access, the interest rate may be quite low or there may be penalties for withdrawing the money.

Notice Accounts: These usually require a couple of hundred pounds as a deposit. You will not have access to your accounts all the time – you will need to notify the bank in advance when you want to withdraw money. The notice period depends on the account – common periods are 30, 60, 90 or 120 days.

Regular Deposit: These accounts require that a certain amount is deposited each month. The easiest way to do this is to setup a standing order or direct debit from your current account. There are usually limited amounts of withdrawals that you can make over a year. The account may be instant access or it maybe notice. There may be penalties for withdrawing money or missing a payment.

Fixed Rate Accounts: These accounts offer a fixed rate of interest for a given period. If the bank rate drops, you will be better off, but if the bank rate increases, you will miss out on the extra interest.
How you run and access your accounts will depend on the rate of interest you receive. Online banking is often a good idea as you can view your accounts quickly and easily and because they usually require less work for the banks, the interest rates are usually higher. Online banking offers you the chance to change your details, view balances and transactions and make payments to other accounts quickly and easily.

It is important to keep an eye on your Savings Account and review them regularly (every 6 months). Rates of interest may change and your Savings account may no longer offer a competitive rate. If this happens, it is worth switching to an account which has a higher rate of interest. Some accounts offer introductory bonuses or rates. Consider switching your account when the introductory period has ended. However, be careful that you will not encounter any penalty charges for switching as these may negate the benefits of switching to another account.

It is also worth ensuring you know the terms and conditions applied to your account – you may get special rates if you don’t withdraw any money, or if your account holds a certain amount of money in it.

Click here for a list of the latest savings accounts.

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