The facts around internet savings rates

If you’re saving or planning to save money, then you’ll naturally have an interest in just how much your savings will grow. You may find that internet savings rates are a little higher, typically, than some others.

There’s no mystery behind this.

Since the 1990s, financial institutions have been keen to encourage their customers to use electronic facilities rather than what some call 20th century banking methods of chequebooks and bank branches etc.

These modern systems may benefit the customer in terms of facilities and flexibility provided, such as 24/7 banking, whilst at the same time reducing the bank’s costs to run their business.

Now not too many customers are going to lose sleep worrying about how they can help their bank – unless, of course, they themselves are going to directly benefit also.

That’s why both as an incentive and in recognition of the lower service costs involved, many banks offer slightly better rates of interest on internet savings products when compared with those available through a branch.

As a practice, this is now relatively common as the banks seek to encourage internet use.

So, if you’re looking for attractive deals then checking out internet savings rates might be a few minutes well spent.

Have you considered online savings?

There’s one very good reason why it might be sensible to think about online savings – they may offer you a greater growth rate.

If that sounds attractive, you may be wondering how it works.

The opportunity arises because the building societies and banks would like to encourage you to work with them through the internet as opposed to their branches.

Typically it’s cheaper for them to service their clients’ accounts through the internet and that means that they may be able to offer better rates online than they can through their branch network.

Of course, you don’t have to work with your bank or building society through the internet but if you do you may find savings products that are simply not available elsewhere.

Many people find using electronic banking over the internet to be simple and a real advantage. Not only will you see different offers but you’ll also be able to avoid those wet and windy wintertime hikes along the high street to get to your branch!

Most major retail financial institutions now offer forms of electronic banking to their customers.

Investigating online savings and banking could be your first step to an easier and perhaps, from a savings point of view, more lucrative banking experience.

What are internet savings?

Although internet savings accounts have been around now for a long time, some people are still a little puzzled by the term.

It’s really simple and relates to a couple of key concepts:

• today the internet means that it’s typically possible to manage much of your routine banking from the comfort of your own home;
• it’s typically cheaper for a bank or building society to service your dealings through the internet than it is via a conventional bricks-and-mortar branch in the high street.

So, since as far back as the 1990s, some banks and building societies have been offering slightly better deals on savings if you do it all via the internet.

In a sense, internet banking and savings benefits everybody.

You have the convenience and comfort of instant banking from your own home. The bank, in turn, can perhaps use the savings they make to offer you better deals on your savings.

So, it may be worth finding out more about internet savings. You may see more going into your savings account as a result!

Choosing between savings products

There are a lot of savings products to choose from!

That’s both a good and possibly a bad thing. On the one hand choice means you can look around and find plenty of options but on the other, too much choice can be confusing.

So, what are some of the key things to look for? Typically they’ll include:

• the return or growth rate (often cited as the interest rate);
• access conditions (typically if you agree to giver a notice period prior to withdrawals you’ll achieve a higher interest rate);
• any variable returns – they may offer the chance of a higher return but also perhaps the chance of a lower one.

Try to keep in mind that any financial product that talks about investing your money probably isn’t a true savings product as such.

This isn’t just a wording or description issue. Some investment schemes may put your capital at risk so seeking advice is advisable if you’re in any doubt.

Many of the leading financial institutions will have a wide range of savings products to select from. They’ll also typically be happy to offer clarifications where required – so don’t hesitate to ask!

Top eight tips for finding a savings product

Savings may not be a subject that traditionally gets people excited. But if you look around for a product that suits your individual needs, you may find that looking into investment issues may be more interesting and worthwhile than you first suspected.
Bear these top tips in mind to give your search for an investment product some direction.

1. Keep your target in mind. Are you saving for something specific? If so, this may give your saving some focus. Even if you are not saving for a particular purchase, having a target amount in mind may help you to put some money aside every month.
2. Decide how much you will save – and stick to it. Whatever savings product you choose, it will be ineffective unless you actually transfer some money into it on a regular basis.
3. Decide how long you can afford for the money to be locked away for. Some accounts and products have minimum periods of notice that are required to get your money back.
4. Consider your own attitude to risk. This may determine the kinds of investments that you choose. For example, shares can fall in value and become worthless, which means that they have a level of risk in them. But on the other hand, they can soar in value, so could potentially have a high level of reward. A cash amount in a reputable bank account will only grow by the amount stated in the interest rate.
5. Consider your options. If you are looking for unusual products to invest your money in, there are plenty out there. From shares in timber yards to fine wines, potentially there is an investment opportunity for everyone.
6. Find out when you can get paid. If you have a large amount of money in a savings account, you may be dependent on the interest payments as income. Accordingly, you may be more interested in getting paid more regularly than someone who has other sources of income.
7. Some financial organisations offer an interactive tool where you can sift through their different savings options.
8. Finally, don’t forget about tax. ISAs are savings products that offer a tax free “wrapper” up to a certain level, and may be worth considering. Visit the Government owned site Direct Gov for more information.

Taking out an ISA

The ISA (Individual Savings Account) has been around quite a while now.

It’s familiar to many, yet surprisingly some people overlook it when they’re thinking about what to do with their savings.

Let’s have a quick overview of its potential.

Encouraging saving through tax breaks

Successive governments have tried over decades to encourage savings by allowing savings product providers to offer certain products that will grow your funds on a tax-free basis.

The basic principle is that:

• generally, any profits or growth on your savings would be taxable;
• some products can offer growth that is essentially tax-free providing certain conditions are met.

The mechanics

Individual savings accounts come into two categories often called:

• stocks and shares based;
• cash based.

The simpler of the two to describe is the cash one.

You only have to deposit money into the account and any earnings will be tax-free.

The government does specify the maximum amount that you can put into this type of account in a given tax year. However, past years accounts can continue to grow tax-free.

The stocks and shares option is slightly more complicated and basically means that you can group a number of investment portfolios under the tax-free umbrella of one of these types of accounts.

Taking advice

The growth rate on these accounts is, of course, something defined by the individual account provider. It’s not the government that decides what rate you’ll get – they only define the levels that can be saved in a given year.

That’s why you’ll typically see noticeable variations in terms of the rates offered by different companies and account providers.

If you are considering engaging in stocks and shares trading while using one of these accounts as a tax saving mechanism, it’s typically good idea to take advice before starting unless you are experienced in trading in these markets.

The ISA is an interesting product that may help keep some of your money out of the taxman’s pocket!

Your savings

There are, apparently, some people who like to save just for the sake of it. They are not concerned too much about how their savings grow, just that they have a nest egg in a location somewhere.

That’s not a million miles away from just putting your money under the mattress and hoping that it stays safe. Even if it does, you may find when you remove it that there’s pretty much the same amount there as you put in.

However, you may have slightly more demanding expectations of what happens to your savings and if so, you may wish to read on.

Typical concerns

Many savers are typically looking for a combination of:

• the best possible growth (aka the most attractive interest rates);
• security and certainly with respect to their capital;
• flexibility around access to your cash if you need it;
• good service;
• online access and management.

That may seem to be not too demanding a list but unfortunately, one or two things on this wish-list conflict slightly with each other.

Access flexibility vs growth

As a general rule, the faster you potentially need access to your cash then the lower the growth rate you’ll receive.

If you agree to tie-up your money (whether it’s a lump sum or incremental savings) for longer periods through things such as locking it away for 12 months or committing to give the bank lengthy notice of any intention to withdraw it, then typically you’ll get more attractive interest rates.

Of course, some banks offer products that are a mixture of immediate access via a limited number of withdrawals per annum and a notice type account.

Providers

You can be sure that you’ll have plenty to choose from. The major finance names have many different products and they’ll typically be happy to offer clarifications if required.

Of course, choosing the right savings product is important.

Locking your money away for lengthy periods may cause you some trouble if you need it quickly. In such cases you may be reduced to paying financial penalties for withdrawing it or frantically trying to tunnel into the vaults!

A quick overview

In a typical case, you’ll probably find:

• standard accounts – instant and unlimited access but probably low(ish) interest rates;
• notice accounts – many different types but essentially all involve the principle of saving money and only being able to withdraw it if you give 7, 14 or 30 days notice etc;
• deposit accounts – typically used for putting in a lump sum and the basic idea is that you don’t touch it for a specified period and just watch it grow through some decent interest rates;
• bonds, stocks and shares – more specialised products that in some cases may involve risk to your capital even if the returns are potentially high.

The mattress

So, you can just regard your mattress or floorboards as an appropriate location for your savings – or you can use modern products, as per those above, to grow your money. Should be a no-brainer!

Top eight tips for getting an ISA

1. Look at whether there is a minimum level of investment. It used to be the case that savings products were only open to those who already had plenty to invest. However, thanks to government initiatives to encourage people to save, you may find that some ISAs are available with very small balances.
   However, some providers may only offer their more attractive rates to people who deposit a certain amount into their savings account per month, or to those who maintain a certain balance. If you have such an account, check that you are able to maintain those requirements.
2. Check that you can afford your ISA. Some accounts may require you to set up a regular payment, so make sure that you can maintain this to continue your ability to hold the product.
3. Check out the interest rates available. You have worked hard for your money – now it is your money’s turn to work hard for you. So look around at the interest rates that are available to find the best return for your money.
4. Decide on cash, shares or both? Did you know that you can have a cash ISA, a stocks and shares ISA or split your allowance between both categories of investment? This decision may depend on your attitude to risk (given that the value of shares may go down as well as up).
5. Keep an eye on the rules. The government may change allowances and regulations about savings products at each budget, so you may wish to pay attention to the next one to see if your own savings will be affected. Visit DirectGov for more information.
6. Find out when you can get your money back. Sometimes, financial emergencies may occur, in which case you may need to get your hands on your savings as soon as possible. Accordingly, you may wish to check how much notice, if any, you need to give to access your savings.
7. Find out when bonus rates end. Some providers may offer very attractive rates for a certain period of time to draw you in as a new customer. However, you may wish to check what the interest rate will revert to when that period ends in order to compare products.
8. Work out what fees, if any, are involved. Some ISA providers may charge fees, so you may wish to find out how these would impact on your savings.

ISA’s – Making Use of Your Tax Free Savings Allowance

Most people are vaguely aware of the fact that they can save some money on a tax free basis every year, some would even be able to tell you that it can be done through something called and Individual Savings Account (ISA). It is the case however that relatively few people make use of ISA’s as an investment vehicle. Part of the reason for this can perhaps be found in the fact that ISA’s are traditionally seen as quite complex and difficult to manage. The UK government tried to address this by overhauling the rules governing ISA’s, with new rules coming into effect in April 2008. The purpose of this short article is to briefly explain how ISA’s work and what the implications of the new ISA rules are for new investors.

Under the ISA scheme an individual can invest up to £7200 per tax year on a tax free basis. There are two way of doing this, they are:

Cash ISA’s: Cash ISA’s are, as the name suggest, simply cash amounts that are saved under the scheme. The most important thing to remember is that there is a contribution limit of £3600 per tax year if you choose to invest in a Cash ISA.

Stocks and Shares ISA’s: With this type of ISA investors invest in the stock market, usually through some form of managed investment fund. The limit for investment is the full £7200 ISA allowance. It should be noted that the amount that you can put in this type of ISA will be directly affected by how much you have already placed in a Cash ISA. If, for example, you invested £2000 in a Cash ISA, you can only invest a further £5200 in a ‘Stocks and Shares ISA.

You can invest your funds in a Cash ISA, in a Stock and Shares ISA, or a combination of both. If you want to make full use of your Cash ISA allowance and also invest your full ISA allowance (£7200) it will of course have to be a combination since there is a £3600 limit on the Cash ISA.

The big question that investors often ask is whether they should go for cash or ‘stocks and shares’.

The main benefits of Cash ISA’s are dependability and security. Placing your money in a Cash ISA is comparable to putting your money in a bank savings account, but with the added benefit that any interest gained will be tax free. It is therefore the perfect place to invest money to earn interest and maximise tax savings while still having relatively easy access to your funds.

Stocks and Shares ISA’s will be invested in the stock market. Any capital gains that you make on your investment will be tax free, but you will have to keep in mind that you are exposing yourself to the ‘ups and downs’ of the market and that your investment could therefore both increase and decrease in value. Stocks ISA’s, in common with other stock market investments, should primarily be seen as a long term investment.
It is relatively easy to take out an ISA since they are offered by many banks, building societies and investment fund managers. As with all financial products you should be careful to read the small print before committing yourself. It is also always a good idea to get independent advice before making major financial decisions.

Summary:

• ISA stand for ‘Individual Savings Account’ and refers to the amount that you can save tax free every year.
• The rules governing ISA’s have recently been simplified, making it much easier to make use of this very important investment channel.
• There are two types of ISA namely ‘Cash ISA’s’ and ‘Stocks and Shares ISA’s’
• Cash ISA’s are ideal for short term financial management while shares ISA’s should be seen as long term investment vehicles.

Instant access accounts explained

An instant access account is a savings account that does exactly as the name describes, it gives you instant access to the money in your savings account. It is a savings account that lets you add and withdraw money to the account whenever you want to, in most cases without charging you to do so. Most banks offer some form of savings account with instant access. The details and policies for accounts like these will vary from bank to bank however there are certain features of the account that you can expect to be the same if not similar in all situations.

Most banks place a few guidelines on how their instant access accounts can be used. An instant access account is usually an account that accumulates interest. There is often a minimum opening balance that you will pay to the bank when you first open the account. In some cases, there will be a minimum deposit amount and other times a minimum balance requirement as well.

For full details on the minimum conditions and requirements for the account that you are thinking of opening, you can speak to an advisor at the bank or read through the conditions on a web site or brochure. It also helps to know all of the proof of address and identification that will be required.

Common Features of Instant Access Accounts:

• Minimum opening balance
• Minimum withdrawal amount
• Minimum addition/deposit amounts
• Minimum required balance
• Interest bearing

As you shop around and compare various instant access type accounts you could compare account policies to ensure you get the best interest rates and minimal account-related fees. You will find that certain characteristics are common among accounts of this type. They provide you the account holder with unlimited access to your account. This would usually include free and unlimited withdrawals. The interest earned on these accounts is most often calculated daily and then paid out to customers on an annual basis. As always, the exact details of an instant access account will vary from bank to bank so be sure to read carefully through the materials that detail the account features.

The majority of high street banks offer some form of instant access account. Traditionally, you would be able to open new instant access accounts at any branch or even online (though proof of ID will often need to be sent to the account provider or taken to a local branch if they have an offline presence).

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