How To Pick Savings And Why

We're fast becoming a nation of savers rather than spenders

. This is the kind of Sunday newspaper statement that will only stay true up until the point when the papers are thrown out with the recycling and is likely to be reversed in another headline the next week.

However, for now, it's true. Brits are paying back their debts more quickly than ever before and putting more into savings accounts rather than spending or borrowing.

Saving, in general, is thought to be a Good Thing without complication - as if the only difference between stuffing your mattress full of fifties and investing in a well-known bank made very little difference, except in the sense that the latter is much less likely to be stolen, soaked in a flood or other lost to posterity and your prosperity.

However, there is quite a difference between accounts not only in terms of interest but in terms of tax that is charged on savings that makes the bank of mattress a poor idea.

When you go to compare credit cards and the APRs are in the teens or even in the early twenties the interest rates on offer with savings - almost always under ten percent - that you see when you compare savings accounts seem like small fry.

However, the savings interest rates aren't greed or for moneymaking necessarily but just for helping the money you make to retain it's value even as the value of money changes over time, as it inevitably does.

So, looking for as high an interest rate as possible is always imperative but keeping an eye on this is also important.

With tax-free accounts such as ISAs this is particularly important since they typically offer an introductory rate for the first year or so after which the interest rapidly declines so in the case of these accounts it's well worth moving once the year is up.

This might seem like an alien concept if you're used to going to compare personal loans, for example, which always have a fixed rate but it's important to treat these savings accounts as a fixed-term deal almost like a fixed-rate energy or utilities offer.

In the case of tax-free savings this is doubly important because the amount that can be invested in savings without being taxed, aside from that which is in stocks and shares - that is, the cash ISA allowance - changes from year to year on the whims of subsequent governments. This is, then, well worth keeping an eye on to make sure that you're not missing out on this allowance under the law.

by: Julia Cook

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