Savings Accounts Explained

When it comes to saving, many of us will be looking to regularly set aside an affordable amount for the future, however the way in which you set aside your funds will depend on the type of account that you choose to use.

Be it for a holiday, retirement or simply a rainy-day sum, there are a number of savings products that can help you reach your savings goals.

Easy Access Savings Accounts

Otherwise known as an instant access savings account, these types of account are simple bank accounts that let you earn interest on your balance.

This account offers a great degree of flexibility in that you can deposit and withdraw as much cash as you like into the account without having to pay any fees. It is also common that these sorts of accounts will come with a bank card and an account is often very quick and easy to setup with a minimal savings threshold.

Pros

• Minimal initial deposit
• Immediate access to your money at any time
• Deposit as much cash as you like

Cons

• Low variable interest rates

Easy access accounts offer a great degree of flexibility and are ideal for unexpected expenditures and emergency financial events.

Notice Savings Accounts

Unlike an easy access savings product, the notice account requires you to give advance notice that you intend to make a withdrawal.

Whilst the length of notice will depend upon your bank, the period usually ranges from 30 to 120 days. Some banks will also require you to specify the amount you intend to withdraw well in advance. An added benefit of this account is that holders will usually earn a higher level of interest rate.

Pros

• You can deposit as much money as you like, whenever you like
• Interest rates tend to be higher as opposed to easy access savings accounts

Cons

• You must give advance notice of your intention to make a withdrawal
• Higher minimum deposit is usually required of £1,000 and above

Whilst less flexible than an easy access account, a notice savings product is ideal for a specific savings goal.

Regular Saver Accounts

Many of us will opt to set aside a set amount per month to save – a regular saver account offers an ideal solution to those seeking to build up a savings fund over a period of time. Whilst requirements will vary form bank to bank, you will usually need to pay in from £25 as a minimum, up to  maximum of £500 per month.

Regular saver accounts also tend to attract higher interest rates than easy access or notice savings accounts, with rates as high as 3% per year. Whilst this is a great option for many savers, the downside is that there are often strict T&C’s when it comes to missing a  deposit and withdrawal before the set time period can also be difficult.

Pros

• Attractive interest rates
• Low minimum monthly payments
• Long term savings strategy

Cons

• Inflexible and you are bound to paying in money regularly to the account
• Unsuitable if you need emergency access to your funds

A popular choice of saving account, the regular saving account is ideal to build up your savings over a period of time.

Individual Savings Accounts (ISAs)

In many ways, an Individual Savings Account (ISA) works in the same way as any other savings accounts, with the except that any interest you earn is tax-free.

Interest rates can be fixed or variable, meaning they may change over time and interest rates are usually higher than you’d find on other types of savings accounts. A known negative of an ISA is the cap of £20,000 that can be deposited.

Pros

• Tax-free interest earnings
• An easy-access ISA still gives you instant access to your cash
• You can make regular monthly payments or occasional lump sums

Cons

• Deposit levels are set to a maximum of £20,000
• The best interest rates are only available if you tie up your money for a fixed term

ISA’s are a common savings product and are suited to those with good long term savings goals.

Fixed-Rate Bonds

Fixed-rate bonds are accounts that allow you to deposit a single lump sum for a set period of time.

This can range from a minimum of six months up to five years or even more and you will be unable to access your money for the fixed duration of the term. In addition you will receive interest for every year that you hold the bond and this interest rate is fixed for the duration of the term.

Pros

• The interest rate is fixed for the full term
• You know exactly how much interest you’ll earn from the outset

Cons

• You can’t make additional contributions or withdrawals
• You could miss out on a more attractive rates if rates go up during the term
• Minimum deposit of £1,000

Bonds offer a good long term savings strategy and are an increasingly popular option for many savers.

We would always recommend that you take professional advice when identifying the right savings product to match your circumstances. For more information please get in touch with a member of our IFA team today, who will be happy to assist you.