Banking / Savings Accounts

Savings Accounts
Savings accounts come in many forms.  There are four most common types;

1.         Internet Savings Account                                                                                        
2.         Instant Access Savings Account                                                                                3.         Notice Savings Account                                                                                              4.         Savings Bond Savings Account

The best savings account is dependent on your requirements.  Do you need instant access to your money or are you happy to leave your cash untouched for a few years?  Do you want online access to your account or do you want to be able to visit a physical branch? 

As a guide, you should ask the following questions when deciding what type of account is most suitable:

• Do you require instant access?

• How will you manage your account?

• When do you want interest paid?

• Do you want a guaranteed interest rate?

Internet savings account
Internet savings accounts offer better interest rates on average than high street savings accounts, the reason being that the overheads of setting up and administering the account are lower and the savings can therefore be passed on to you.  Having an Internet savings account brings you the convenience of being able to manage your savings whenever it suits you, 24 hours a day.  Most Internet accounts will allow you to check your balance, make transfers and view statements for the period of your choice.

In addition to making an online transfer into your savings account, money can also be paid into the account through a standing order or by sending a cheque in the post.  Money can be taken out of your account by either requesting a cheque to be sent to you, or by electronically transferring funds to another account.

Some online savings accounts go a step beyond offering market leading interest rates.  Some banks / building societies will offer some form of guarantee associated with their Internet savings rates.

The only potential disadvantage of an Internet savings account is that statements may not sent in the post, and some people prefer to be able to walk into a high street branch and physically pay in cheques themselves.

Instant Access Savings Accounts
As the name suggests, instant access savings accounts give you immediate access to your savings, without incurring any penalties.

Generally, instant access accounts will offer a lower rate of interest compared to accounts that require you to give notice before withdrawing money.  However, if you shop around you will find that there are instant access savings accounts available that offer higher interest rates than the majority of notice savings accounts.

You can deposit lump sums or regular payments into your account. Interest is paid monthly or yearly and in some cases you will be able to choose.

Notice Savings Accounts
Notice savings accounts require you to give advanced notice to the bank / building society that you wish to withdraw money from your account.  If you do not provide sufficient notice then you will be penalised in the form of lost interest.

Generally, notice accounts will offer a higher rate of interest compared to instant access accounts.  However, when you compare accounts from different banks/building societies, this is not always the case.

Notice accounts will vary with regards to how many days notice you are required to give. Typical notice periods are 30, 60 and 90 days.

Some notice accounts offer a little more flexibility in so far as you are permitted a certain number of instant cash withdrawals each year without penalty, perhaps two or three.  This can be very useful if you need to access your money in an emergency.

Other notice accounts will offer an annual bonus if you don't touch your money for a year.  The bonus can be withdrawn, once credited to your account, without losing the following year's bonus.

If you feel you are lacking somewhat in self-discipline you may prefer to have a notice savings account because the very fact that you have to give advanced warning of any cash withdrawals prevents you from withdrawing money on a whim, and therefore ensures your savings remain untouched.

You can deposit lump sums or regular payments into your account.  Interest is paid monthly or yearly and in some cases you will be able to choose. 

Fixed Rate Savings Bonds
Fixed rate savings bonds are investments that offer a guaranteed fixed interest rate for the term of the investment, which is typically 1, 2 or 5 years.  Interest is paid net of savings tax at 20%.  The terms of the bond will state how money may be deposited, i.e. whether deposits can be made as a lump sum and/or on a regular basis.

You are required to keep your money invested for the full term of the bond in order to benefit from the higher interest rates offered. Withdrawals are not permitted.

Savings bonds offer tiered interest rates, so the more you invest the higher the rate of interest earned.  Savings Bonds offer growth, whilst protecting your capital.  Your returns are not dependant on fluctuating interest rates, only by the period of the savings bond, with higher interest rates being offered for longer investment periods.

The fixed rate of interest therefore offers security for those preferring a low risk investment, and makes planning your personal finances a little easier.

Savings bonds are also available where a higher rate of interest is offered, but the decision as to whether the interest is paid is subject to the performance of the stockmarket.  You should check the conditions of such savings bonds as they will vary.

The advantage of opting for this form of saving over investing directly in the stock market is that you remove the risk of losing any of your capital.  So, no matter how badly the stockmarket performs over the term of your savings bond, you are guaranteed to get your initial capital back.

Things you should know
Opening a savings account with a building society qualifies you for membership of that building society, which in turn means you may be eligible for special benefits and exclusive offers.

Many savings accounts are issued with 'passbooks', especially building society savings accounts. These are small books that you present when make a deposit or withdrawal. Therefore, they provide a convenient, up to the minute record of your balance and a history of transactions made.

As with all savings accounts, the minimum deposit that can be made in order to open the account will vary from one bank / building society to the next.

Interest rates are usually banded according to the balance in your account, meaning the more money you save the higher the rate of interest you'll earn.