There are many different kinds of saving accounts but which ones are best for you depends on how much you’re looking to save and when you want to access it. To understand the basics for savings, we talk to Money to review the types of savings accounts there are and the kind of savings you should be aiming to set up.
What type of savings accounts are there?
Instant access accounts: This kind of account allows you to withdraw your money at any time. These accounts can be great if you don’t know when you will want to withdraw funds.
Notice account: With this type of account you need to give notice before you withdraw money or you’ll have to pay a penalty. You can usually pay into these accounts at any time, but because you need to give notice if you want to withdraw your cash, be sure the rate you’re getting is worth it.
Regular saver: These accounts require you to save a set amount each month. They can be great if you have a saving goal and need an incentive to help you save.
Fixed bond: This kind of account locks your money away for a fixed amount of time and usually come with a fixed interest rate for the whole term. They can sometimes have higher interest rates because you’re guaranteeing your money will stay with the bank the whole time. If interest rates rise however, your money will continue to be locked in at your old rate so you won’t benefit from higher rates.
ISAs: ISAs are a tax-free saving account. In the UK you have an ISA allowance every year which allows you to save or invest a certain amount of money without paying tax on your return.
Do you have to declare your savings?
It will entirely depend on your circumstances and whether you are self-employed or not. Every basic rate taxpayer in the UK has a Personal Savings Allowance of £1,000, meaning the first £1,000 of your savings interest earned in a year is tax-free. If you’re a higher rate taxpayer, then your allowance is £500 and 45% taxpayers have no savings allowance at all. https://www.money.co.uk/savings-accounts/what-is-a-savings-account.htm
Build yourself a portfolio, the kinds of savings you should be creating and where to put them:
Rainy day funds help to cover you in the event something unexpected crops up like car repairs, boiler breakdowns or appliance failure. For this kind of saving, you’ll want an account that allows you to withdraw money whenever you need to; free of charge could be beneficial for this kind of use.
Just in case the worse should happen and you need to leave your job or you’re let go. For this, experts recommend building up a pot of around 6 months of your salary to help you in the event you lose or need to leave your job. It’ll be a constant nest that will give you peace of mind should you need to not work for a little while. Similar to the above, you may not know if you are going to need this account until it happens. If you know you have a notice period on your job then you could consider getting an account that requires notice as long as it isn’t longer than your own notice period. This would of course only be beneficial if the account that needed notice was offering a better level of interest than an instant access account.
For fun- Perhaps you’re looking to save up for a big holiday you’ve always dreamt of! Once again it’s likely you will want to withdraw this money at reasonably short notice, however this kind of trip could be something that you’d want to save for regularly so a regular savings account that allowed you to withdraw money with no penalty could help you build up your funds.
A little nest egg– to help you build for the future whether to buy a house, pay off debts, buy a car outright etc.
This will very much depend on your situation. If you’re saving up for your first house then making the most of a government backed scheme like Help to Buy or Lifetime ISA could help you save more.
If you have debts it is often beneficial to pay them off prior to putting money into savings as the rate of interest you have to pay on your borrowings could be greater than the returns you will get from your savings.
If you’re planning for the future and are willing to keep your savings locked away for a certain period of time, find an account that matches your needs and offers the best interest in return.
Is there any other savings ‘accounts’ our readers should aim for?
The type of savings account you choose will be very personal and depend on your own circumstances and goals. If you’re saving towards your home the type of account you choose may be very different to someone who is on the property ladder with a lot of disposable income. Always compare to find the best interest rate for the account with the right flexibility and features you need.