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If you are looking at the options available for how to save money to achieve the best return, you might be a little unsure which the most suitable choice is. Here we provide a basic overview of the main savings options and which might best suit your needs.
Instant access savings accounts
This is where you should place your emergency fund, as your money can be accessed without delay. Often the best interest rates are available through internet-only or telephone-based accounts, but it is important to remember that it may take a number of days for a cheque to be sent or for a transfer of money to your current account. An account with a high street bank may not offer such good interest rates, but will provide quick access to your money either via a cash machine or in-branch. Interest rates can change during the year, so review the best options available quarterly.
Higher interest rates come at a price with these accounts, as you have to wait typically 30, 60 or 90 days before you can access your money; remove it earlier than this and you are charged a penalty. However, you can now get instant access accounts offering similar rates to notice accounts, so there is actually no need to have access to your money restricted.
Regular savings accounts
These are ideal if you want to save a set amount of money each month. You may only be able to take out a high interest regular savings account with a high street bank with which you already have a current account. Make sure you check the conditions fully, as there might be strict limits for how much money you can deposit each month and the number of withdrawals you can make; the interest you earn may also suffer if you do not save the agreed amount.
A cash ISA (individual savings account) allows you to earn tax-free interest on your savings. These do not usually offer the best interest rates, but those with the highest interest rates usually outperform the standard savings accounts after tax; rates can be compared using the gross rate paid on a cash ISA and the net rate paid on an ordinary savings account. Non-tax payers should choose whichever savings account offers the greatest interest rates, as they will not pay tax wherever they place their savings.