Saving money is essential for financial success in the future, but it isn’t always as simple as just putting money away for a rainy day. When it comes to saving, there are many different types of savings accounts to choose from. Different types of savings accounts are suited to different requirements so you need to consider why you are saving, how much you will be putting away and when you will need to access the funds again. You should also consider if your savings account provider is covered by the Financial Conduct Authority.
In this guide, we cover the types of savings accounts and what you should consider when making your decision.
What are the different types of savings accounts?
Put simply, a savings account is designed specifically for money you don’t plan on spending right away. You pay your savings into your account and will be paid interest. Unlike current accounts, savings accounts do not offer overdrafts or any form of lending. They can assist you in saving up a lump sum of money and help you earn interest on your cash.
Some of the most common types of savings accounts are:
Instant access savings
These are a basic type of savings account and allow you to deposit and withdraw money whenever you want. Many people use this type of savings account to save for unexpected emergencies. Interest rates on these types of savings accounts are often lower than with fixed term accounts.
Fixed rates savings
These savings accounts are great for when you do not need to access the funds for a while, for example if you are saving for your retirement or to buy a house. The amount of interest you will earn is fixed for the entire term of the account and these accounts generally offer better rates. Terms vary between one to five years, but you should be confident that you can afford to tie your cash up in this way before paying in.
If you plan to make regular payments into savings then a regular savings account might be the option for you. With these types of savings accounts you will pay in the same amount every month and benefit from preferential interest rates. In order to receive this interest, you will need to keep up with regular payments. When you can withdraw your money will depend on the type of account you choose.
Cash Individual Savings accounts (ISAs)
Cash ISAs are a very common type of savings account and were designed by the Government to help with long-term saving. You do not pay tax on any interest earned, and interest rates can be competitive.
These work in a similar way to an adult’s account and can be opened for any child under 18. Interest rates and access to funds can vary between accounts.
What should you consider when choosing a savings account?
With so many different types of savings accounts to choose from, knowing which is right for you is not always easy. Here are a few things you should consider when choosing different types of savings accounts:
- The amount you are saving: Different types of savings accounts will pay varying levels of interest depending on the amount you save. If you are saving large amounts of money then it is sometimes worth splitting it between various accounts. Ask yourself if you can pay the same amount in each month or are your savings going to be more sporadic, as this will also help you choose the right account.
- An emergency fund: It is always worth stashing an emergency pot of money to one side in the event of unexpected expenses or a change in circumstances. For this kind of savings your money should be in an account which allows you to access it instantly.
- How long you are saving for: If you are planning on long-term savings without accessing your money in the near future, then a fixed term savings account could be the best option. Consider if you will need to access money before the end of the term because there can be high penalties involved if you make an early withdrawal.
- What you are saving for: The most suitable option will depend on what you are saving for. It may be worth speaking to a financial planner who can assess your portfolio and recommend the best way to maximise your gains.
Where can I get advice on where to save my money?
Choosing where you save or invest your money can set you up for success with your financial goals. At Alan Boswell Group we can help you choose the right options for your unique situation by getting to know your requirements (including your attitude to investment risk) and providing independent advice and guidance. To find out more visit our financial planning page, or contact the team on 01603 967967.
Tax treatment of savings and investments depends on your individual circumstances and may be subject to change in future.
If your money is invested, the value of the investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.