Here are some things to bear in mind when you apply for a savings account because, let’s face it, sometimes applying for a savings account can become quite complicated, especially when you consider that each account is designed to meet different needs, and it is not simply about finding the best interest rates.
Types of savings accounts
There are several different types of savings accounts on the market, such as high interest, tax-free, and online savings accounts. The type that suits you will depend on a number of things, including how much and how often you will be saving, and how easily you want to access your cash.
How much money do you want to save?
Many of the high interest savings accounts are associated with high minimum deposits and are therefore only available to you if you commit to saving a certain amount of money, so make sure that you check this when you apply for a savings account.
Inflation
While we appreciate that inflation does not stir passion in most people, it is something to consider when it comes to your savings. If the rate of inflation is higher than your saving account’s interest rate, this means that the value of your savings is actually decreasing.
Tax
If you didn’t groan at the mention of inflation, you’re sure to groan at the sound of tax. If you are serious about your savings, you need to know what type of taxpayer you are because this could have an impact on your account. When you apply for a savings account, a good first place to stop is a Cash ISA as these are tax-free and so boost the amount of interest you can earn by up to 50%.
Access
If you need to be able to get at your money at any point, it wouldn’t be wise to invest your savings into a fixed rate bond. However, if you are not planning on needing the money for a long time, perhaps until retirement, a fixed-rate bond paying higher interest might be more appropriate. Similarly, cash ISAs are attached to an ISA limit so if you dip into your savings every now and again, you might want to get a standard instant access account for your short term savings and an ISA for your long-term savings (particularly handy if you want to still be able to access your long-term savings in an emergency without being penalised).
Withdrawals
Some savings accounts are associated with withdrawal restrictions, meaning that you are only allowed to make a set number of withdrawals from the account within a 12 month period. Going over this limit usually incurs a ‘no interest’ or ‘reduced interest’ penalty.
Interest payments
There are two typical ways to receive your interest payments, monthly or annually (although sometimes it is possible to receive quarterly payments). As a long-term saver, annual interest payments are usually preferred and monthly interest is more relevant for short term savers or those that need to dip in to savings.
Introductory offers
When you apply for a savings account it is possible that your bank or building society will offer you an introductory interest rate which will only apply for a set period of time. It is important that you establish whether you have been offered a high interest savings account, or if it is an introductory bonus offer.
Account Management
Modern times have brought about modern ways to manage your savings. No longer do you have to rush to your local branch before it closes at 5pm because you can simply open an online savings account. This would allow you to keep track of your finances from the comfort of your own home.
