Jürg Widmer shares a guide to savings accounts. Everyone should have some sort of savings. This is the safest way to ensure future security. Read more...
2022 has a few financial challenges in store for many people here in the UK. So, it’s wise to get your ducks in order and ensure you have a plan in place to save every penny you possibly can for a secure future.
While traditional savings accounts aren’t what they used to be, they’re still a viable option for squirrelling away money you don’t want to spend and save for a rainy day or an important financial goal. There are many ways in which to make money work for you and this is just one of them.
What are savings accounts?
Savings accounts are separate from your current account (although often available to run alongside via your chosen bank), where you can deposit money and earn interest.
The most important thing to know before we delve deeper into savings accounts is that it’s wise to set up an auto-payment to deposit your chosen monthly saving amount directly into your savings account the second you get paid. This helps prevent the temptation or mistake of spending it as disposable income.
If you have debts, there’s no point in having savings. It’s important first to pay off debts and then focus on savings.
Saving money can be done even if it’s £10 a month; having something is better than having nothing.
If you have a significant amount of disposable income each month, you would be wise to allocate a portion of that for lifestyle spending and then move the remainder into a savings account.
Types of savings accounts
Of course, there are several types of savings accounts available, and new offers come on all the time, so it’s wise to keep an eye on the market to see which ones will provide the best rates at the time.
Ones that lock your money away for a period of time will sometimes offer the best rates, while others provide lower rates for the benefit of accessing the money any time.
Which savings option will suit you will depend on your individual circumstance. If you have considerable uncertainty deciding what’s best, speaking to a financial advisor should help you make the best decision for your interest.
Financial advice doesn’t have to cost the earth or even anything. There are plenty of places to seek free financial advice; just always try to ensure it is independent so that it is impartial.
With the exception of cash ISAs, interest is taxed on your savings when the amount exceeds a personal savings allowance. The allowance will depend on your individual tax band and can range from £500 to £1,000 at the time of writing.
The government can make annual changes to such figures, so it’s always wise to watch all the latest finance news.
You may be wondering how many different savings accounts you can have. There is currently no limit on the amount of savings accounts you can open. Just try to ensure it’s a manageable amount, and you don’t lose the details of any of them!
Easy Access Savings Account
This type of account is exactly what it says. It provides instant access to your savings, whenever and now wherever, thanks to the invention of apps. The downside to this type of account is that you can end up using it to top up your monthly lifestyle spending and end up not saving anything in the long run. Also, you’re likely to receive a very small interest rate.
Notice Savings Account
Again, it says what it does in the name. You are required to provide notice set out in the terms of the service, and if you do not, you will pay the penalty. The benefit of this type of savings account is that it tends to provide a higher interest payment.
Fixed-Rate Savings Account
With this one, usually for a higher interest rate and greater benefits, you can lock in your savings for 1 to 5 years.
The smart thing to do if you have a future financial goal would be to consider this but then also choose one (or more) of the other more accessible options to help ensure you don’t lock away all of the spare money you may someday need to access and can’t if it’s all locked away!
Regular Saver Accounts
This is for people who deposit a regular amount into their savings account every month, and in doing so, will usually achieve a higher rate.
Many banks provide this service, but they won’t always be the best rate, so investigate all options open to you.
Cash ISA Savings Accounts
The benefit of ISAs is that they are tax-free. That said, it’s highly unlikely you will ever earn more interest than your personal savings allowance. For 2021/2022, the ISA limit remains at £20,000 per year.
Any interest earned is not subject to tax, but access conditions vary, so ensure you’re aware of what those are for your individual ISA.
Children’s Savings Accounts
It’s never too early to start saving for those big occasions, like your first school disco outfit, college or a home. Anyone with parental responsibility can open a savings account for a child in their care and start saving until the child reaches the specified age to gain access to those funds or it’s transferred to their control.
Remember, if a child receives over £100 in interest, anything over that, the person with parental responsibility is liable to pay the tax.
Ensure that you first work out your financial budget to discover your income, expenses and disposable figures.
If you have enough disposable income to cover all of your monthly lifestyle expenses and extra, save the ‘extra’ amount in at least one savings account, but ideally two if you have a decent amount to save, especially if you have a financial goal to meet.
If you have debt, always pay off the debt first, increase your earnings and disposable income, and only then start saving.
Play the savings game if you really want to make the most money on your money. Always lookout for the best rates and regularly move your money into the savings accounts with the greatest benefits.