Top Tips for Choosing a Savings Account
Tip 1 – Set a Savings Goal
What do you want to get from your savings? How much do you need to save? When do you need the money? You might want to save a set amount by a target date or save up for a specific purchase or project. Your savings goal will help determine which account is best for you. If you have more than one goal you could use different accounts for each one.
You can use different accounts for different goals. For example, use an instant access account to save for an emergency fund while using a fixed-rate account to save up for a deposit on a house.
Tip 2 – Know yourself when comparing rates
How hands on are you likely to be with your savings? Some accounts offer a high bonus rate which is designed to tempt you in – but bonuses drop off after a certain period.
If you have time to shop around and don’t mind switching to get the best deals, set a reminder to switch at the end of any initial bonus rate. If you don’t have time to keep switching, avoid accounts offering bonus rates and look for a rate that’s been more stable historically.
Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.
Tip 3 – Use regular savings accounts or fixed term deposits
You could earn a bit more interest with a regular savings account or a fixed-term deposit or savings bond. But, with a fixed term account you may not be able to access your money immediately (or even not until the end of the term) – and there could be a hefty withdrawal fee.
Beware of structured products that look like cash bonds offering a high interest rate, these are risky investments and not suitable for cash savings.
Tip 4 – Be tax-wise
Do you pay income tax? If not, ask to have your account interest paid gross – otherwise tax will be automatically deducted. If you are a tax payer you can earn interest tax-free in a cash ISA. But be sure you’re getting a good interest rate so the tax benefit isn’t cancelled out by lower returns.
Tip 5 – Don’t keep a huge with just one banking group
Cash you put into banks or building societies are protected by the Financial Services Compensation Scheme (FSCS). The FSCS savings protection has a specific limited amount per authorized firm.
It is worth noting that some banking brands are part of the same authorized firm. If you have more than the limit within the same bank, or authorized firm, it’s a good idea to move the excess to make sure your money is protected.