Which savings account?
Want to go on a big holiday next year? Thinking of buying a house? Come into a little money? Start saving.
A savings account can have a variety of uses and could hold an emergency fund to rescue you from the next nightmare situation, but which type of account is right for you? Remember to check the terms and conditions when you open any account to make sure there are no hidden surprises.
Cash ISA
This is perhaps the one you will have heard of most, but still don't know what it is? ISA stands for Individual Savings Account and is the name of a Government scheme to allow people to save money without having to pay tax.
Interest rate: shop around for the best rate. You will find both fixed rate and variable ISAs, but both have the benefit of being tax-free.
Minimum amount to open: anything, but you can't exceed £3600 cash investment in each tax year. This limit increases to £5,100 from 6 April 2010. If you have a Cash ISA, you can also hold a stocks and shares ISA in the same year, although the overall limit on ISA investments in a single tax year is £7,200 (which increases to £10,200 from 6 April 2010).
Best use: For tax payers who wish to avoid paying Income Tax on their interest. If you are a non-taxpayer at the moment, ISAs have no immediate benefit; but if you have money to save, it is worth considering using your ISA limit each year as this can build up a tax-free fund if you do start to pay tax in the future.
Instant access
These accounts allow you access to your savings instantly or within a few days without a penalty.
Interest rate: As the account is so flexible, a lower variable interest rate will usually be offered, however graduates may be able to enjoy the benefits of high interest and instant access for the first couple of years after a degree.
Minimum amount to open: £0
Best use: Good as an emergency fund, or a chance to start saving yet still allowing you access to the cash should you really need it.
Notice Accounts
These require plenty of notice to be given before withdrawals can be made, usually between one and three months however you can sometimes access the money instantly if you are willing to pay a penalty.
Interest rate: Higher than instant access accounts, variable.
Minimum amount to open: It depends, but you will probably need at least around £100.
Best use: Trust funds, inheritance, larger sums of cash that you want to build up but don't need to get your hands on easily, such as a mortgage downpayment.
Bond or Term Accounts
These pay much higher rates of interest because they do not allow any withdrawals until a set date.
Interest rate: Fixed at a competitive rate
Minimum amount to open: Around £1000.
Best use: Inheritance or similar, such as money to pay for college fees or a swanky wedding.
Regular savers accounts
These require a commitment to invest each month, encouraging regular savings rather than lump sum investments. Access varies from instant to fixed term.
Interest rate: Variable.
Minimum amount to open: A minimum and maximum investment per month is often required, these vary from between £10 - £20 min and £100 - £2000 max.
Best for: Easy savings where you put aside a small amount from your pay cheque each month. It may only seem like a small saving, but it all adds up.
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