The financial market has many different types of savings accounts available which can make it difficult for people to decide which account best suits their interest and needs. Furthermore, there are different factors that will directly affect the type of account which suits your needs. This include the reason why you are saving money, how likely you are to need regular access to your savings, how long you are prepared to lock your savings away (either short or long-term) and whether you will pay tax on the interest earned from the savings.
1. Easy Access Savings Account
These are instant access savings account; these types of account are simple bank accounts that gives you easy access to your savings. They allow you to deposit as much money as you like into the bank account. It also enables you to withdraw your savings at anytime whenever you want without paying any fees or charges. Some of these easy access accounts also come with a bank card which can be used to make cash withdrawals from an ATM, over the counter withdrawals in your bank branch as well as transferring money out of your account online.
• Easy access to your savings at any time; You can withdraw cash whenever you like penalty-free.
• Deposit as much money as you like, whenever you like.
• A very small deposit is required to initially open the account. You can open most of the accounts with only £1.
• Low variable interest rates.
• You may possibly have to pay tax on interest.
Why Easy Access Savings Account?
Easy Access Savings Accounts are safe and flexible, allowing you to build up your savings at your own pace. Because you can withdraw your money at a moment’s notice without incurring any penalties, they’re well-suited to saving for emergency funds. The disadvantage is that you won’t usually earn much interest compared to other types of savings accounts.
2. Regular Saving Accounts
These types of account require you to deposit a sum of money each month without a fail, so they’re best suited for those who are just starting to save for the first time or those who wish to save a specified amount of money each month in a disciplined way. Requirements vary from bank to bank, but you’ll usually need to pay in at least £25 and not more than £500 per month. You’ll also have to commit to making these regular payments for an agreed period, typically 12 months.
Regular savings typically have a limit on the number of cash withdrawals you can make each year therefore, it is not ideal account for emergence saving. Regular Saving Accounts also have strict terms and conditions. You may be penalised if you miss a month’s deposit. In addition, a Regular Savings Account is likely to restrict you from investing more than a certain sum each month, preventing you from depositing extra cash in your account whenever you want.
• Attractive interest rates. Rates can be as high as 5% per year.
• Low minimum monthly payments.
• Helps you save a specified amount of money each month in a disciplined way.
• Inflexible as you’ll usually have to pay in money regularly to the account.
• Unsuitable if you need emergency access to your money.
Why choose a Regular Savings Account?
If you have a steady source of income and can afford the fixed monthly payments it can be a great way to build up your savings reasonably fast. Regular savers can also be a good fit if you want to save up for a specific goal and don’t mind giving up some flexibility in exchange for a higher return.
3. Notice-Savings Accounts
Notice savings accounts work in a different way to Easy Access Accounts. With these types of accounts, you don’t have the flexibility of withdrawing your savings whenever you like instead you must give your provider an advanced notice that you intend to make a cash withdraw. The notice period will depend on your bank, it usually ranges from between 30 to 120 days.
• Interest rates tend to be higher than those offered on Easy Access Savings accounts.
• You can deposit as much money as you like, whenever you like.
• Higher minimum deposit is required to open an account – usually a minimum of £1,000.
• You are required to give notice of your intention to make a withdrawal or risk being penalised (usually via missed interest or a reduced interest rate).
Why choose a notice savings account?
Notice accounts are suited for those saving up for a specific goal (e.g. saving for a big holiday or to pay the deposit on a property) but want to retain control over how much money you can save each month. It still provides the flexibility to save at your own pace, and the notice period can be useful, it discourages you from withdrawing money whenever you want.
4. Individual Savings Accounts (ISAs)
Individual savings accounts also known as cash ISAs works pretty much in the same way as any other savings accounts. The only notable difference is that this types of account allow you to earn tax-free interest. Interest rates can be fixed or variable therefore, can change over a period time. When compared to other types of savings accounts, ISAs typically have higher interest rates (though they are not as high as regular savings).
There are many different types of ISAs which are stock, cash and shares. Furthermore, there is a limit on the amount of money you can deposit in your ISA each year, the current limit is set at £20,000 for the 2018-2019 tax year. You can put money into one of each kind of ISA each tax year.
• Any interest you earn is tax-free.
• If you choose an easy access ISA you can still have instant access to your cash.
• You can make regular monthly payments or deposit a lump sum depending on your circumstances giving you greater flexibility on how much you can save each month.
• You have three different types of ISAs to choose from: stocks, cash and shares, or a combination of both.
• There is set limit, you can only deposit a maximum of 20,0000 in the current tax year.
• High interest is only available if you choose an account with fixed term.
Why choose ISAs?
Unlike other accounts, any interest you earn is tax-free. It also gives you flexibility as it allows you to make regular monthly payments or deposit a lump sum, depending on your circumstances giving you control on how much you can save each month. To get the best interest rates you will have to choose an ISA with fixed term interest. This means that you have tie up your money for a specific period and you won’t be able to make withdrawals for that period. Therefore, ISAs works better for people who have long-term savings goals e.g. savings money for retirement.
5. Fixed-Rate Bonds
These types of accounts allow you deposit a single lump sum for a set period. The account offers a fixed interest rate on your money for that set period. You will receive interest every year that you have the bond, and this interest rate is fixed for the duration of the term. The period can be between one to five years or longer. The longer you lock away your money, the higher the rates are.
• The interest rate is fixed for the full term, so you won’t be affected if interest rates go down.
• High interest rates if you are willing to lock away your money for a long time. The longer you lock away your money, the higher the rates are.
• Many fixed-rate bonds require large initial deposits.
• You will usually need to put in at least £1,000 to open this type of account.
• You can’t deposit additional money during your fixed term.
• You typically cannot make withdrawals for the duration of the agreed term. However, if you are to make a withdrawal you are likely to receive big penalties for early withdrawal.
Why choose a Fixed-Rate Bonds?
Fixed-rate bonds are best suited if you can afford to set aside a large of sum of money for a long period of time. The interest rate is fixed for the full term therefore, you won’t be affected if interest rates go down in the future.
6. Important Information To Note
Before opening any savings account with any provider make sure you do your research to ensure you get the best interest rates. Also speak to the provider you have chosen to go with so you know exactly what you are taking out. I recommend you use the following comparison website: