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Savvy tips for finding the best savings account

Savvy tips for finding the best savings account

Category: Savings

Updated: 23/11/2012
First Published: 08/11/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Research from Saga has revealed that nearly half of savers aged between 50 and 65 are stashing away extra savings to help fund their retirement.

In such tough economic times, where annuity rates have continued to drop dramatically, an encouraging number of people are choosing to invest in their futures by building a savings nest egg.

Whilst it can be tempting to stash money away in the best paying account in the market, it is vital that your savings account suits your lifestyle and financial needs. Finding a suitable account, as well as competitive rate, will mean your savings work harder for you.

Here are some tips to help you find the best savings account:

Easy Access with no bonus accounts

No notice, or easy access accounts are best suited to savers who require short-term access to their funds. Money can be accessed without giving the provider advance notice and without incurring penalties.

No notice accounts, paying variable rates of interest, can sometimes be confused with instant access accounts, although there is a slight difference.

Whilst no notice accounts do not require advance notice to access funds, money will not always be available immediately. Funds can sometimes take time to appear in savers' accounts, as cheques may take time to clear.

It is always a good idea to check as to whether a no notice account has any conditions or restrictions. For example, some accounts may have a limit on the number of withdrawals permitted per year.

No notice accounts tend to pay lower rates due to their flexibility and convenience.

Notice accounts

These accounts require savers to give advance notice to access their funds.

Notice periods vary, ranging from seven to over a hundred days. Savers must be prepared to wait for the duration of the notice period before accessing their money, or else incur penalties such as a loss of interest.

The loss of interest will tend to match the account's notice period. For instance, if the notice period is sixty days, a sixty day loss of interest penalty will apply.

Easy Access Accounts with bonuses

Many savings accounts include introductory bonuses to boost the initial rate and attract business.

The rates on these deals can appear attractive; however, bonuses often account for a large percentage of the overall rate. For example, an account paying 3.25% may include a 1.50% bonus.

It is important to remember that bonuses will only last for a limited period, usually twelve months. Once the bonus period expires the bonus part of the rate will disappear, leaving you on the original and lower rate.

Always make a note of when the bonus period expires to allow plenty of time to review your savings options and avoid reverting to a lower rate.

Cash ISAs

All UK citizens aged 16 and over (or 18 for those investing in stocks and shares ISAs) are allocated a tax allowance of £11,280, of which £5,640 can be invested in a cash ISA and the remaining £5,640 in a stocks and shares ISA.

ISAs, which stand for Individual Savings Accounts, are tax exempt, meaning you do not pay tax on any interest accrued.

As well as knowing that the Government is not pocketing your hard-earned savings, the tax-free element of cash ISAs means that they are immune to the effects of inflation. Reassuring to know at a time when high inflation continues to batter savings returns.

Available as either variable or fixed rate accounts, some cash ISAs allow savers to transfer funds from their previous year's allowances across to a new account.

Allowances must be used by 5 April; the start of the tax year. Any unused allowances will be lost for good.

Fixed rate savings bonds

Perceived sometimes as complicated investment products, fixed rate bonds are simply a savings account with a fixed term and rate which does not move in line with the Bank of England base rate.

These accounts are best suited to savers who are committed to leaving their savings untouched for a fixed period, ranging from six months to five years.

Providers tend to offer better rates for fixed rate bonds compared with standard variable accounts, in return for savers locking their money away for the duration of the term.

The majority of fixed rate bonds will impose penalties, such as loss of interest or even account closure to savers who access funds during the term, although a handful of deals offer some degree of flexibility.

Regular savings accounts

Regular savings accounts are best suited to disciplined savers who are prepared to commit to the often strict terms and conditions attached to these products.

A regular payment, hence the name, within the account's minimum and maximum deposit parameters is agreed between the customer and provider upon the account being opened. A certain number of payments, usually one per month, are required, although a few accounts allow some flexibility with monthly contributions.

Missed payments will often be subject to penalties such as loss of interest, as will failure to comply with restrictions on withdrawals.

Generally speaking, variable regular savings accounts will allow instant access to funds although there may be some limit as to how many can be made within specific period. As with most fixed savings accounts, minimal flexibility with accessing funds will apply to fixed regular savings deals.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.