Choosing the Best Savings Account

Most people who are fortunate enough to have substantial savings worry about whether their money is working as hard as possible for them. For many this vague worry is as far as they get when it comes to making choices about their savings. They will leave their funds in the same savings account year in and year out without seriously considering if this is indeed the best place for their funds to be. The fact is that there are so many excellent savings products on the market that it would be slightly foolish not to investigate whether your cash is at the right ‘address’. The purpose of this article is to provide a brief overview of the kinds of things that those thinking about moving their savings account should be asking. The most important of these questions are:

Where can I get the best return?

Notice that the heading reads ‘the best return’ and not merely ‘the best interest’. This is because banks will often try to lure customers with promises of excellent rates of interest and then make their buck by levying substantial charges for the ‘privilege’ of an account that earns so much interest! It could also be that a higher interest rate on an account is merely a ‘bonus rate’ that will expire after a few months. It is very important, in light of this, to do a few calculations to determine the ‘bottom line’ before committing to a specific account.

Another thing that you will need to consider is that you will have to pay tax on any interest that you will earn on your savings. The very best rate of return will therefore be achieved by using the one form of savings account that is tax free (at least up to a point). I am referring of course to a ‘Cash ISA’ where you can invest up to £3600 in cash on a tax free basis. It would therefore make sense to first use your ISA allowance before making further decisions on returns on investment.

How much access do I need to my funds?

As a general rule accounts that place restrictions on how easily you can access your money pay better interest than vice versa. Bonds and fixed terms deposits are therefore very good options if you are quite sure that you will not need your savings on very short notice. It would be good to do a bit of homework before you make this decision however since some instant access savings accounts offer rates that compare quite favourably with those of fixed term deposits.

Do I need to earn an income from my savings?

Many savings accounts pay interest irregularly (e.g. once a year on the anniversary of the opening of the account). There are others however that will give you the option to draw down interest income from your account on a monthly basis. This would of course be quite an important feature for those who are interested in earning a regular income from their savings.

Once you have decided on the features that you are looking for in a savings account you will have to do some work in order to find an account from a respected provider that matches your preferences as closely possible. Most financial institutions will be only too happy to do everything possible to help you to set up the account as quickly and painlessly as possible. Once you have decided on your ideal account it is important not to ‘rest on your laurels’ but to continually evaluate whether the account that you are holding is still the best option for you.

Summary:

• There are many excellent savings products around and it is therefore very important to shop around to find the best deal.
• A good rate of return is one of the most important considerations when choosing a savings account.
• Ease of access is another issue with term deposits generally paying higher rates of interest.
• Those who want to withdraw regular interest income from their savings accounts should make sure that the product that they choose will allow this.