The 'how’s' of saving are equally as important as the 'why’s', and the how’s can sometimes be a bit tricky to navigate. All banks and building societies have different account options, varying % rates, and it can feel a bit like drowning! So here’s a quick rundown of the pros and cons of the most popular ways to save to help clear your mind a bit.
1. Standard Savings Accounts
- These are usually flexible, meaning you can access them online or through mobile banking and withdraw money from them at any time without being penalised.
- They’re accessible, as you can often open these accounts with as little as only a quid, which is a great place to start!
- Interest rates usually vary from 0.10% to 0.20% depending on what bank you go with. This doesn’t sound like much but it’s still making money just by having your money in a savings account. (Some banks offer ‘Monthly Savers’ which are a variation on the theme. You usually have to put in a set amount per month, and they are less flexible with withdrawals, but the interest rate is much higher, some climbing to 2.0% or even 2.5%.)
- You need to pay tax on your savings. (Honestly – this floored me when I found out! I just didn’t know!) If you’re a basic tax payer you get a Personal Savings Allowance of £1,000. This means that the first 1k you make in interest from your savings you don’t need to pay tax on… anything more than that though and you do.
- The interest rates are not as high as the rates you can get on other accounts (such as ISA’s).
- Because they’re easily accessible online it’s really easy to keep dipping into them and taking money out throughout the month, meaning you don’t save as much as you intended to.
- You don’t need to pay tax on any interest you earn on your money.
- There are loads of different types of ISA’s that help you with different things. Some help you put towards your first mortgage, others give you a tax efficient way of investing in stocks and shares. Look here for the list of the 4 ISA’s available to you in the 2017/18 tax year.
- The interest rates are higher, some climbing to 2.75%
- You can’t save infinitely. There is a limit on the amount you can put into ISAs each tax year. For the 2017/2018 tax year the limit is £20,000.
- They’re famously not flexible about withdrawing your money part way through the tax year. Some are better than others so it’s worth checking with your provider which type your ISA is.
- Depending on which type of ISA you get you are tied into using that money for the specified purpose. (ie. If you get a Help to Buy ISA then that money MUST be used as a down payment on a mortgage, otherwise you forfeit the benefits earned).
3. Fixed Term Bonds
- It has a fixed interest rate over an agreed amount of time, usually 1 or 2 years. This is a pro as it gives you peace of mind, but equally it can be a con depending on which way the market goes whilst your money is in there!
- The interest rates are higher than those of a regular savings account.
- The money is not easily accessible so you can’t keep dipping in and out of your savings, slowly eroding them over time. (Hands up, guilty!)
- It’s not easily accessible and if your circumstances change and you need your money in a hurry you can’t get to it.
- You usually need a large amount to deposit in the first place. (£1,000 or £2,000).
This is by no means an exhaustive list, but it’s a summary of what is available to you at most banks and building societies. Ultimately, it’s your money and you know your needs better than anyone else.
What’s most important when it comes to saving though, is to just do the best that you can! Your life, your savings!