[savings_calculator]

We all want our cash to grow and a good savings account can help you achieve that – as well as keeping your money safe for a rainy day.

Saving a small part of your paycheck every month is a fantastic way to build up a pool of cash but there are many different types of savings, so it is important to understand the differences to ensure your cash works as hard as possible.

Using a savings calculator can help to find the best account for you, with the lowest saving charges and the best return on your money.

Easy access savings accounts

The simplest form of building up savings is the bog-standard account where you deposit cash and withdraw it when necessary. Here, most providers will pay a variable interest rate and your percentage will vary on your credit score and amount deposited. This can be worked out by using an online savings calculator.

Easy access accounts are often marketed as instant access deals but you don’t always have an immediate withdrawal facility given you often first need to transfer the money to a current account, which can take up to three working days.

If the account comes with a cashcard, you may be able to withdraw money when you want.

Notice accounts

These work in the same way as the standard savings account, except you have to give advance warning before making a withdrawal. Notice accounts are preferred by those who are wanting to save money over a longer duration and withdraw finances over the long-term.

Fixed rate accounts

You can often get a better deal if you are prepared to fix the rate and lock your money away for the term of the account (of between one and five years).

The advantage (if you don’t mind losing access to your cash) is you can be certain of what you will earn and your rate cannot fall. However, if interest rates rise across the wider economy you won’t benefit. A saving calculator can help to calculate this for you.

While rare, a few providers allow you to withdraw some or all of your money during the fixed term, though that concession often comes with a penalty, such as the loss of interest.

Regular savings accounts

Regular savings accounts usually pay a fixed rate for the term of the account (often one year) as long as you deposit a set amount each month, usually between £25 and £250 (some providers allow £500).

However, if you miss a payment or make a withdrawal, you could face significant loss of interest. It’s best to refer to a savings calculator in order to ensure that you can keep up with payments before selecting this option.

Cash Isas

Usually available as an easy access or fixed rate deal, cash Isas work in the same way as most other accounts but the interest, unlike in a normal account, is tax-free. This means it is usually best filling your Isa allowance before saving anywhere else.

You can also place investments within an Isa (where most of the returns are tax free). The total Isa allowance in the 2010/11 tax year between cash and investments was £10,200, although this can be calculated by using a savings calculator this year.

You can fill the total with an investment but the maximum allowed as cash is £5,100. This allowance will rise every year from then on in line with inflation.

Interest rate warning!

Regardless of the type of account you have, always keep a close eye on the interest rate for two reasons:

  • Many accounts come with introductory bonuses that usually last a year after which the rate plummets.  If you’re offered a 4% account that comes with a 3% bonus for a year, it will dive to 1% after 12 months.
  • Many banks and building societies cut the rates paid, often with little notification, so keep a close eye and switch account, if necessary. Many providers make it difficult to view your rate as it is not always printed on statements. Most have an online list of rates, though it can sometimes take plenty of searching for.

Also remember that, unless you have a cash Isa, any interest earned will be taxed at your income tax rate.

Stay safe

Whatever you save, ensure your cash is as safe as possible. In the unlikely event your bank or building society went bust the first £50,000 (rising to £85,000 in 2011) you have per person, per financial institution is guaranteed by the official Financial Services Compensation Scheme as long as you’re saving with a UK-regulated provider. If you have more, it’s safer to spread it about.

Print Friendly, PDF & Email