subject: An introduction to savings [print this page] An introduction to savings An introduction to savings
Savings are of course a good idea, not least because having a bit of money put by provides some peace when faced by unpredictable - and sometimes costly - occurrences in life. If you are planning to start saving for the first time, the market of savings products can seem complicated. However, the type of savings product that will best meet your needs is easy to ascertain with the answer to a few simple questions.
If you find that, generally, money is tight, you probably need an instant access savings account. Instant access savings, as the name suggest, are flexible enough to allow you to withdraw money without any hassle in case of emergency.
On the downside, the interest offered on the average instant access account is pretty low. This is due in no small part to the Bank of England base rate of interest, which at a record low has a knock on effect on interest rates across the whole of the banking sector.
The best kind of instant access savings are found in the cash ISA range, as the interest on funds placed in such an account is tax-free, up to the annual limit. The limit this year stands at 5,100, and the interest gained on money within this limit will not be taxed (in contrast to the interest made on standard savings accounts, which is liable to taxation).
Many of the cash ISA accounts on the market offer instant access, and so it is cash ISA accounts that should probably be your first port of call when looking to set up instant access savings. However, even though instant access cash ISA accounts are tax free, the rate of interest offered is still typically quite low.
If your finances will allow you to put aside a set amount every month, regular savings accounts can offer some of the best interest rates on the market, at least for the initial introductory period that is usually around 12 - 13 months. The top rate of interest only applies if you keep up the regular deposits, and there is usually a limit to how much you can place in the account.
If you feel that you might struggle to keep up the regular minimum payments, but have a lump sum to save, fixed rate savings bonds can usually offer better interest than most standard savings accounts.
Fixed rate savings bonds are usually started with a one off deposit, and then deliver a fixed interest rate for the term of the bond, which is commonly one year, 18 months, or two years. Fixed rate savings bonds usually come with a penalty is you need to access your money before the bond matures, and so should probably not be used as your sole form of savings, so that you have some flexibility in case of emergency.
