Building savings is a key part of planning for the future, putting aside for the things that are important to you, and preparing for the unexpected. But before starting your savings journey, there are a few things to think about…
Things to Consider
- What is the interest rate? – what interest rate is offered is a major factor that sets apart savings accounts. You should check how long the interest rate is offered for, whether it is fixed or variable and whether it is paid monthly or annually
- What is required from me? – to have the savings account, are there any strings attached? For example, do you have to save a certain amount every month? Is there a minimum deposit to set up the account? Will you face charges for withdrawing money? Do you have to give a certain amount of notice before you can access your money?
- How quickly can I access my money? Further to the point above, some savings accounts require you to supply a certain amount of notice before you can access your money. Additionally, some savings accounts will run for fixed time periods, where you’re likely to get a higher interest rate, but can’t touch your money at all during that time. For emergency funds, you will need to access your money at short, or no, notice. However, for long term savings, it may be worth considering these fixed term savings accounts
Different Types of Savings Accounts
There are a range of different savings accounts, but here is a quick overview of some of the most popular ones:
- Regular savings accounts – where you pay a set amount every month into your savings account over a set time period, such as 1 year. You tend to have a minimum and maximum monthly pay-in limit, such as between £10 and £500… this will depend on who you open the account with. These tend to have higher interest rates than easy access and instant access accounts. Some account providers may allow you to take money out before the fixed term is up, but others will not
- Easy access and instant access savings accounts – where you can access your funds whenever needed, just like with a current account. You can usually set up one of these accounts with an initial deposit of just £1. With instant access accounts, you can make withdrawals from it whenever needed without limit. With easy access accounts, there may be some restrictions on how many times you can withdraw money within a certain time period.
- Notice savings accounts – where you have to give notice in advance before making any withdrawals. The amount of notice required tends to start at 30 days but can be longer depending on the account’s terms
- Fixed term savings accounts – where you lock away your savings for a set amount of time at a set interest rate. This is also known as a fixed term bond. These accounts tend to have good interest rates… in fact, the less accessible your money is, you will generally see a higher interest rate afforded to you
Top Tips
If you have savings of over £85,000, make sure you distribute them between multiple savings accounts to ensure that you remain protected by the Financial Services Compensation Scheme (FSCS). The FSCS will compensate you if you hold money with a UK-authorised bank, building society or credit union that fails, but they only do so for amounts up to £85,000.
Make sure you always read all of the information provided before opening up a new account. Compare different types of savings accounts and account providers to make sure you pick the best one for you.
To find out more about the FSCS, bank accounts, reading your bank statement, and overdrafts, click here to access Red Star Education’s FREE mini-course!