Savings Accounts
It is important in today’s financial climate that people are
encouraged to save money and one way that you can do this is through a savings
account. Even if you can only save something small each
month, you should try and earn the best rate of interest that you can and make
your money work harder for you.
There are many different savings accounts available on the
market, but generally, they fall into the following categories:
Instant Access Savings Accounts
These accounts are designed to give
you instant access to your money whenever you need it and are probably the most
popular of savings accounts purely for their convenience.
Usually, the best interest rates for instant access accounts are available
through online internet banking. However, some branch based,
postal or telephone accounts can offer modest rates of interest too.
Term Accounts
These accounts are good if you are
happy for your money to be tied up for a set period of time, usually for one,
two or three years. In return you will normally receive a
higher fixed rate of interest. Some banks may allow you to
make withdrawals within the set term, but be careful as your bank may reduce the
rate of interest you receive. Other banks may allow you to
make one withdrawal within a certain month of the year free of any interest
penalties.
Notice Accounts
These accounts have been around for
years and are normally operated by post or telephone. As the
name suggests, you need to give your bank advanced warning if you wish to make a
withdrawal. This period of notice can be around two to three
months in advance. These accounts usually pay poor rates of
interest and are an inconvenience if you should ever need to lay your hands on
your savings in an emergency.
What about Cash ISAs?
ISA is short for an Individual Savings Account.
A Cash ISA is a form of savings account that can fit into all of the
above three categories. A Cash ISA is different to an
ordinary savings account due to the fact that all the interest you receive on
the account is paid free of any income tax. You therefore,
receive the interest gross.
In return for this generous tax saving product, the
government restricts you on how much you are able to save within a Cash ISA.
You may only save up to a maximum of £3,600.00 in a Cash ISA each tax
year. A tax year runs from 6th April to the 5th
April the following year. You are only permitted to save into
one Cash ISA with one bank in any one year. This means that
you can’t open two ISAs with two different banks and pay into each of them (even
if you only paid £1,800.00 into each ISA).
Again, some of the best Cash ISA interest rates can be found
online and they are usually the easiest to operate.
An important point to note with Cash ISAs is that if you make
a withdrawal from your account, you will not be able to replace it and pay it
back in. For example, if you have saved £3,600.00 into an ISA
and you make a withdrawal of £600.00, you will be unable to pay back in the
£600.00 at a later date. This is because you have already
used up your maximum £3,600.00 allowance for the year. You will
then not be able to save anything further into your ISA until the following tax
year.
Cash ISAs are an extremely tax efficient way of saving money.
However, if you are looking for an account that allows you access to your
savings without penalty or restrictions, a normal instant access savings account
may be more appropriate for you.
Transferring Cash ISAs
Cash ISAs can now be transferred from one bank to another if
you wish to add savings that you have built up in previous years under an ISA to
a new ISA that you have just opened for example. By
transferring a previous years’ allowance, this will not affect your current
allowance and you will therefore, still be able to save £3,600.00 in the current
year.
However, not all banks and building societies can accept
transfers from a previous ISA so you should bear this in mind if you are looking
to move your savings. Also, banks have been highly criticised
in the media of late for long delays in processing ISA transfers.
Be sure that if you are looking to transfer your ISA, you are aware of
your bank’s turnaround times for completion. You will not be
paid your higher rate of interest on your full savings until your ISA fund has
been moved to your new provider.
Need help in finding the best savings rates?
Then look no further. Click here to go to
our savings account comparison table.
