Savings accounts can be confusing. There are so many to choose from, and what exactly are the differences between them? To stop you getting a headache comparing all the different accounts out there, we have done the hard work for you. We have looked at some of the most popular types of savings accounts, so you can choose exactly the right one for you.
Broadly, there are three types of savings accounts:
- Instant Access (short term)
- Fixed Rate (long term)
- ISA’s (Individual Savings Accounts)
Instant or Easy Access Accounts are just that. You can get hold of your money at any time and are free to access or move your money whenever it suits you. You are not tied into any long-term deals or penalised for making withdrawals. The downside of Easy Access savings accounts is that the interest rate is usually quite low. Typically, the interest rate for an Instant Access Savings Account is currently around 0.5%-1.5%. This means that for every £100 you save, you will earn between 50p-£1.50 in interest over a certain period of time.
Another factor you may want to consider is the ease of access to a branch. There isn’t much point having an Easy Access savings account if you have to drive miles to the local branch, so we have focussed on online accounts, which are more convenient for most people.
Three of the best Instant Access Savings Accounts on offer at the moment are:
- Marcus by Goldman Sachs – this is an online account with 1.5% for the first year and
unlimited withdrawals. Start with £1.
- Sainsbury’s Bank Defined Access Saver Issue 7 - 1.4% but a minimum of £1000 at
opening. Unlimited withdrawals and no penalties.
- Post Office Online Saver – 1.38%, unlimited withdrawals and no penalties.
Fixed rate Savings Accounts, or bonds, offer a much better rate – usually around 2.5% but
can be anything up to 5%. However, your money will be tied up and most require at least
30 days’ notice to access your cash. Most of these accounts require you to leave your
money alone for anything from six months to five years and you may incur a hefty penalty if
you do have to withdraw funds early. However, the longer you leave your money, the more
interest you will accrue.
Three of the best Fixed rate Savings Accounts, which require you to leave your money alone
for a minimum of one year, include:
- Paragon Bank – a minimum save of £1000 and a fixed rate of 1.92%
- Post Office Money - open with £500, a one-year fixed bond rate starts at 1.90%
- Virgin Atlantic Flying Club Savings Issue 5 – this one is great for travellers and can be
opened with just £1.
Lastly, Independent Savings Accounts, or ISA’s. These are tax free savings accounts and the
2018/19 tax year allowance is up to £20,000 per person. ISA’s run alongside the tax year,
which is April 6 th -April 5 th each year, which means you can save up to £20,000 within that
period without paying any tax at all. There are many different types of ISA’s, including:
- Cash ISA
- Fixed Rate ISA
- Help to Buy ISA
So, why bother saving? Saving, even just a little bit, is a great habit to get into. It might seem as if there isn’t enough money left over at the end of the month to start saving seriously, but even if you start very small, once you start the saving habit it is one that will serve you well. As someone once said, ‘Do not save after spending, instead spend after saving’! Good advice for the thrifty!