Savings: options for growing your money
If you are looking to save rather than spend money, given the current financial crisis, you will of course want to secure the best rate of return for your money. There is a large and competitive market offering different kinds of savings products, and each of these products has its own advantages and disadvantages. Here we look briefly at a strategy for savings, and some of the possible products on offer to nurture your nest egg.
Most savings products fall into one of four categories: Cash ISA accounts, regular savings accounts, instant access savings and fixed rate savings bonds. The first three are savings accounts, each with different rules and rates of return; but crucially, sharing the common property of being free from the risk posed by investments, which can fall as well as rise in value.
Fixed rate savings bonds are a little different; but unlike other forms of bonds - like corporate and government bonds - fixed rate savings bonds offer a guaranteed rate of interest over the life of the bond, and are not subject to the risk of investment. The only risk posed to savings accounts is the possible failure of the bank; but recent legislation means that savings of up to £50,000 are protected, per U.K. regulated financial institution. It is worth noting that due to the fact many banks are owned by a large conglomeration, you need to check to ensure that different banks count as separate institutions, should you have more than £50,000 to save.
The first type of savings account to look at should always be the cash ISA, as the interest gained on money invested up to the annual allowance is tax free, meaning that the rate of return cannot usually be beaten by other forms of savings accounts. The gains from non-ISA accounts count as income, and are therefore taxable.
Once you have reached your cash ISA limit for the year (which stands at £5,100 this financial year), the next best rate of return offered will generally be through a regular savings account - these savings accounts regularly out-perform standard savings accounts. Regular savings accounts require the regular deposit of a minimum monthly payment, in return for which a good rate of interest is paid for the agreed period. The First Home Saver from Santander, for example, is a savings account that offers 5% interest for savers under 35 who have not yet had their name on a mortgage. However, these accounts only work if you can meet the regular minimum payment, otherwise the interest paid will drop considerably. There is always a maximum limit on the amount that can be saved in a regular savings account, and generally there is also a time limit on how long the top rate of interest will be paid.
If you are in the fortunate position of maxing out both your cash ISA and regular savings accounts options, you probably don't need to read this guide! Fixed rate savings bonds lock your money away for the term of the bond, and in return for giving the bank your money for this time, a better rate of interest than a standard savings account is offered. If you think that there is a possibility you may need access to your money while saving, the best standard savings accounts can be found with some research online; try using the money advice and comparison websites as a shortcut in your research.