If you want to put money in a savings account or already have savings, then it is good idea to make sure that you are getting a good return on those savings. With interest rates so low at the moment, it means that savings account interest can often be lower than the rate of inflation, meaning that your money is actually losing value. This can reduce the incentive for saving and may even increase the incentive for borrowing. However, it is worth looking around to see what savings accounts are available as you could find that you will be able to get a much better rate and this will make saving much more worthwhile.
Look at notice accounts
It is worth considering whether you are happy to not have instant access to your savings. Instant access is where you can withdraw your money as soon as you need it. This means that if there is an emergency and you need the money or if you are simply saving up for something and are ready to buy it, you will be able to get the money when you need it. With a notice account you will have to give the financial institution notice that you want your money. The amount of notice will vary but it could be between one and three months. Decide whether you are happy to give notice to get your money. It really depends what you are saving for and the likelihood that you think that you will need the money. It is worth noting that you can get the money right away but you will have to pay a penalty which will be in the form of docked interest.
Consider fixed rate accounts
There are some savings accounts which offer a fixed interest rate. These tend to be bonds and you may have to leave your money in the account for a year or more in order to receive the interest. Again, you will need to think about whether you are prepared to tie your money up for this long. Obviously it will depend on the term and what you are saving up for. A lower term, perhaps a year, will attract a lower interest rate than a longer term, normally. A fixed rate account is always a bit of a gamble because you may find that interest rates rise while you have the money tied up in the bond. If this is the case, it could be that you will have got better interest in an account with a variable rate. This is a gamble, so think about what you expect to happen to interest rates and what level they are to decide whether you are happy to gamble. The rate is likely to be quite a bit higher than variable rate accounts anyway and so even if rates go up a little bit you may still be better off.
Tax Free Accounts
There are some savings accounts which are tax free. Normally savers have to pay tax on the interest they receive on their savings. However, low earners will only pat tax on interest over £1000 and so switching to a tax-free account may not benefit them. However, if you do pay tax on interest then it could be an advantage. Tax free accounts include ISA’s and premium bonds but there are other tax-free options as well. It is worth looking at them as the rates could be good, although these days they are often low compared to other types of savings accounts.
Compare regular savings accounts
If you do not want to give notice of tie your money up then you will need to look at regular savings accounts. You will need to compare the rates of them all to see which is best. Once you have had the money in the account for 6-12 months then you may wish to compare the rates again. This is because rates do vary and so some may change and others may not, meaning that there could be better deals in the future. To compare them many people would use a comparison website or look on a finance website. It can be wise to look at a site such as money saving expert which is kept up to date with the best rates and includes all accounts.
Look at other factors
It is worth bearing in mind that interest rate may not be the only important factor when selecting your savings account. Some savers also like to go with a company that they trust or one that comes recommended by people that they know. Think about whether there are other things that you might like to consider when you are choosing your savings account and then you will be able to use those things in order to help you to choose.