Savings accounts
Many people have savings in a deposit account but they do not always offer high interest rates. You need to consider what you are saving for, for example, whether it's a car; an emergency; education or a round the world trip.
Once you know what you are saving for, consider:
- whether you are able to save regularly;
- when you need the money by;
- whether you need quick access to the money, and
- whether or not you have to pay tax on any interest your savings earn.
Banks and building societies will usually deduct tax from the interest paid on savings accounts. Higher rate taxpayers may find they have to pay some more tax to cover their overall tax liability.
Sometimes interest can be paid without deduction of tax - for example to customers who register as non taxpayers. Also certain National Savings products pay interest without tax being deducted. You should always seek independent professional advice if you are uncertain about your personal tax position.
It is worthwhile shopping around for the best deal as there are a variety of savings accounts on the market. Online accounts, where you do all your banking via the internet, tend to offer high levels of interest - but this isn't always the case.
Notice accounts:
If you pay money into a notice account you have to give a certain number of days notice before you can take money out. If, in an emergency you have to withdraw money immediately you can usually do so, but you loose the number of days interest equivalent to the notice period.
These accounts usually pay slightly better rates of interest to compensate you for the inconvenience of having to give notice - you should expect a better interest rate the more notice you have to give before withdrawing your money.
Postal accounts
As the name suggests, all your transactions are done via post. This enables the provider to offer higher rates of interest because they do not have the cost of maintaining a branch. Most postal accounts use first class post but you do have to rely on the efficiency of the post.
Regular savings accounts
This account is good for people who can save a set amount each month. Check the withdrawal allowances. Some only allow one or two withdrawals a year. Some also offer a bonus.
Fixed-rate accounts
These accounts offer a fixed rate of interest for a set period. Be careful - while it may seem like a good interest rate at the time, if the general level of interest rates increases you will lose out, as you will remain at the fixed rate.
However the other side of the coin is that if the general level of interest rates falls when you are still on your fixed rate, the interest you receive on your savings will be unaffected until the end of your 'fixed period'.
Most savings account nowadays have tiered rates. These accounts pay higher amounts of interest depending on how much money you have in the account. Obviously the more money you have saved the higher amount of interest you earn but check carefully the differences between the tiers. Some have a difference of over 2,000 quid between interest levels.
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