Savings and Investments

Banks and building societies offer a wide variety of savings accounts which come with a range of interest rates. The account that is best for you will depend upon various factors, such as the length of time you can commit to leaving your money untouched and the amount of your initial deposit.

Many savings accounts that come with lower interest rates tend to be instant access accounts. That type of account is one in which you can deposit and withdraw money out on demand, without needing to give any notice and therefore incur any interest penalties. This type of account can typically be opened with sums starting a one pound and is considered a great product with which to get into the discipline of saving, as cash can be deposited into the account as and when the account holder wishes.

An alternative is a monthly saver account which tends to offer better than average interest rates and can also typically be opened with a small balance, along with an agreement to pay a fixed amount into the account each month by standing order. Withdrawals are usually allowed without notice, but any funds withdrawn cannot be replaced and the only payments allowed will be the monthly payment. Interest is only paid on maturity, usually after one year. This type of account encourages the saver to keep their funds in the account without touching them as they build over the year.

But, for those in a position to be able to deposit large sums of cash, typically in excess of £2,000, for a number of years then they are in line to get the best savings rates on the market. In return for committing their cash to a bank or building society for a significant period they will be rewarded with a premium rate. However, with such deposit accounts there is usually a notice period, typically three or six months which must be given for any withdrawals. Some banks and building societies may limit such the amount of such withdrawals before the account reverts to an instant access account.

The accounts already mentioned normally have interest paid after income tax is deducted, if the account holder is a UK tax payer. However, the government allows savers to accumulate up to £3,600 per year (or £5,100 per year if over 50 from October 6th 2009) in an account on which interest is paid on a gross basis i.e. free of tax. This type of account is called an Individual Savings Account or cash ISA and every tax payer is entitled to deposit the maximum amount in such an account every year. Like all other accounts rates can vary dependent upon whether the ISA is an instant access or deposit notice account.

Make sure that when you open a savings account you think about how you are likely to use it and whether you need access to any cash before deciding upon the product that is most appropriate.

About the Author:

Victoria Cochrane writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.