Its a simple product but the choice of savings account can make a big difference to how your savings grow over time. Read this for some simple points to consider in selecting and opening a new savings account
"The choice of a top paying account can make a big difference to your savings "
Tax on Savings
First off think about the impact tax can have on your savings. Here is a link to a useful article which explains the impact for UK residents. Click here for a guide to Tax on Savings
For some people who pay higher levels of tax the impact of Tax on savings can become significant particulars when you consider this over a number of years. Given this there are a range of savings products which the financial services providers offer which can be attractive given their preferential tax status (often resulting in a zero or significantly lower tax impact)
"Consider tax efficient savings options"
The most important aspect of savings accounts in the interest rate and this is often overlooked as something people don't understand fully.
Rather than explain this in a complex formula - which you can find on this link to a savings sample formula; lets just set out some key principals for you to consider. The higher an interest rate the faster your savings grow, any interest rate needs to be considered either before or after tax as per the first point above since this can make a big difference and finally consider all the deals you can find on the market as the cost to switch if often zero meaning if you want to be a saver getting the best return you need to review your savings account regulary and make sure your still getting a good deal.
Access to your money
One aspect you must consider in choosing a savings account is what type of access you require to your money.
This can impact your savings in a number of ways -
- Term deposits - these often have a lock in period meaning in reality you should only select this type of savings product if you know you don't need access to your money for a specific period
- Withdrawals penalties - some savings accounts come with restrictions like this which mean when you make a withdrawal you will incur a penalty, typically a period of lost interest which will impact the return on the savings account
- Access restrictions - some savings accounts come with access restrictions, there are now a wide range of these in the market such as internet only e-savings accounts or postal accounts which require you to send written requests for funds.
- Fixed Terms - these are often 1 / 3 / 5 year savings deals where your money is totally locked in for a fixed period (some offer your cash back with a significant penalty such as zero interest for early withdrawals)
- Account Limits - some savings accounts have restrictions in place in terms of the minimum and maximum balance
Overall the choice of savings accounts means although they are a simple product the market is complex and like any financial product you need to consider your personal needs and make a decision based on these.