SPECIALIST savings accounts tend to give a better return than interest-paying current accounts and have the added advantage of keeping your savings in a separate pot so you are less likely to dip into it. Investing your money in a savings account could be a foolproof way to save easily but what do you need to do before choosing your account?
What type of savings account?
Savings accounts generally come in two basic types: instant (or easy access) and notice accounts.
Easy access accounts allow you to access your funds whenever you need them. Notice accounts require you to give a certain amount of notice before making a withdrawal otherwise you will incur a fee. Notice accounts generally offer the better interest rates of the two.
Fixed rate or variable interest?
One easy, secure and fool proof way to save is to find a good fixed rate savings account. The AA may be well known for its breakdown cover and motor insurance but it also offers attractive fixed rate savings accounts to help you keep on top of your finances.
One of the main advantages of a fixed rate account is that you can work out in advance exactly much interest you will earn for a given deposit over a given period (or term) but there are other things to consider too. Fixed rate accounts may require you to leave your deposit in the account for a pre-agreed period of time without making withdrawals.
If you need to access your funds you generally can, but there will be a penalty for doing so – potentially jeopardising the lucrative interest rate which attracted you to the account to begin with. You might also be required to deposit a lump sum upfront so it’s important you read the terms and conditions thoroughly.
For those who are likely to require regular access to their savings or lack the initial deposit needed, a variable interest rate account may be better. These are accounts which advertise an average rate that fluctuates in relation to market performance. These accounts usually have less stringent terms and conditions but the interest earned usually fails to match that of fixed rate accounts.
Other saving options
Other options include cash ISAs (Individual Savings Accounts) which allow you to earn tax-free interest but have limits on the amount you can deposit within a single year.
ISAs also fall into two categories: cash ISAs and stocks and shares ISAs. You can invest in both providing you stick within your saving allowances. As of April 2013, the annual ISA investment allowance is £11,520. Of this, a maximum of £5,760 can be invested in a cash ISA.
For younger savers, a Junior ISA can be opened but has a lower limit of £3,720.
Jeremy is a UK writer that focuses on tips and advice to saving money.
He hopes to save to build his dream house on a southern facing plot on the outskirts of his childhood town of Wimborne, Dorset.