Five ways to save and why they may suit your financial situation
How you choose to save money is one of the most awkward aspects of personal finance for banks and building societies to cater for. Not only are the circumstances of every saver different, the actual requirements of the customer, whether they are looking for an excellent rate of interest, or would like to have easy, immediate access to their money are very different. Many people like the idea of their bank investing their cash in stocks and shares in the hope of raising additional revenue in excess of what interest would pay, while others prefer to play it safely and place it in a low-risk account knowing that while the rewards are potentially not as great, there is less risk to their money.
It is these vagaries of human nature that make it difficult for banks to provide a simple solution for all - as such there is a wide number of different saving options available.
Listed below are four of the most popular examined in more detail, together with what you should be looking for from your financial provider to make your selection the best type of savings account.
- Cash ISAs
- Fixed rate cash ISAs
- Stocks and shares ISAs
- Savings bonds
What are they?
You are allowed to save up to £5,340 per year (as of 2011-12) in each of these tax free. You usually make a set monthly payment into the ISA to build it up, though larger single lump sum payments (up to the yearly allowance) are allowed.
What you should look for:
The great thing about an ISA is that it is tax free; everything you earn in interest is yours to keep, so look for a good rate of interest. It is worth checking to see if the advertised rate is merely an introductory offer. If it is, it may be prudent and financially worthwhile to move your money at the end of the introductory period to take advantage of a new offer.
What are they?
Fixed rate cash ISAs are very similar to the cash option; however, they usually offer a slightly higher fixed rate of interest. While this does mean your money works harder for you, it usually comes at the expense of being able to easily withdraw cash from the ISA if you need it. This is one of the best isas available if you know you are going to invest under £5,340 each year, but also know that you are not going to have to access that money in the future.
What you should look for:
Obviously the best savings rates are important for this type of ISA, but equally as important can be how easy it is to administer and after how long you can access your money. Check out these details with your provider beforehand before making your decision. A general rule of thumb is the higher the interest rate, the longer time and the more difficult it is to access your money during the initial period.
What are they?
A stocks and shares ISA sees your cash is invested into stocks and shares. If these make a profit, you then get this money as a dividend tax-free. You can invest up to £10,680 (in 2011-12) in a stocks and shares option, or you can split your money between a stocks and shares ISA and a traditional cash or fixed rate deal.
What you should look for:
If you are going to save more than £5,340 a year, then this is a good option for investors. Look for a financial institution that has a proven track record on delivering the goods on the stock market. Although you have a say over where your money is invested, it is their financial experts on the stock exchanges that ultimately decide whether your investment earns you a profit.
What are they?
People seeking to invest a large lump sum of money often find savings bonds the best option. There are a variety of different bonds available - fixed rate and tracker and both offer varying rates of interest on your cash.
What you should look for:
Many bonds only allow a single deposit during the initial term of the account and occasionally there is a minimum amount to be deposited, depending on the type. Ensure you are receiving a good rate of interest and that your initial term is not too long. Some offer introductory terms of a year; others two years. Consider leaving your money untouched for that length of time before committing to your bond of choice.
