With high inflation and low interest rates it makes sense to seek out the best deals on your savings.
Those who have not kept their finger on the pulse and switch accounts could well be losing money as the interest rates fall below the inflation rate.
With so many savings accounts on offer it can be a minefield when choosing where to place your hard earned cash.
Understanding the basics of savings accounts can help you choose the right savings account for you.
What types of savings are available?
Savings accounts fall into four broad categories:
This is a tax free way of saving money. If you are tax payer then you will be liable for at least 20% of tax on any interest you have earned but with an ISA the interest is paid tax free.
Also known as savings bonds. These type of accounts lock your money in for a set period of time, usually between one and five years and pay a fixed rate of interest.
These are ideal if you don’t need access to your money. These usually offer a high return on your investment but bear in mind that the rate that seems attractive today may not be so appealing in a couple of years time.
This type of account normally gives you a really good return on your investment as the banks offer headline grabbing rates, however they also come loaded with restriction.
You will normally have to deposit a regular income into the account to qualify. Be aware that the headline rate normally only lasts 12 months, after which it reduces significantly.
This is the most flexible of accounts and allows you access to your savings without any penalties, however they are more often than not the least rewarding in terms of return on investment.