Saving for a Rainy Day?

Sam Jackson

June 6, 2011

November 13, 2018

Saving for a Rainy Day?

When looking for the best savings account, there's a few different factors you might want to consider. The number one piece of advice is to shop around. Every savings account will have different criteria, so when comparing the advantages here are some factors to bear in mind:

Intro bonus

Introductory ‘bonus' rates are designed to attract new customers. They are temporarily higher interest rates, which act as a 'minimum rate guarantee' for the introductory period, however long that might be. This means that you will always get at least some interest on your savings for the period outlined. If you are especially crafty, you can move your money to a different type of account as soon as the introductory rate ends, but check the terms to make sure you have the option before attempting that trick.

Easy access

Look at what access you will have to your money. The terminology here can give you clues. “Easy access” refers to both instant access accounts (i.e. you can make an immediate withdrawal of cash from a branch) and no-notice accounts (which can take a little longer to get the cash, often a few days). With some accounts you must give notice to withdraw money or pay a penalty. The notice period can be as long as 180 days. However, the easier it is to get to your money the more likely it is that the interest rate will be lower.

Withdrawals

Some accounts will only allow you a limited number of withdrawals per year. With others you will not earn any interest for months where you make a withdrawal. The impact of these limits and penalties will vary depending on how often you wish to withdraw from your account.

Compare like for like

Sometimes you will be quoted two different interest rates. There is the Gross rate, which is a set percentage paid monthly; and there is the Annual Equivalent Rate (AER), which is a theoretical annual interest rate that factors in compounded interest over the year. When you are comparing two interest rates, be sure you compare the same type of rate.

Check account names

Check the exact name of the account. Some banks will hook you with a high interest rate account, then they'll try to sell you on a different account with a similar name. Always check if you are changing accounts.

and finally ...

Tax

Check your Savings tax situation. You will pay tax on your savings unless:

  • You have a cash ISA
  • Your earnings and savings interest combined are less than £6,475 personal allowance
  • You are over 65 (the personal allowance limit for over 65s is higher)

Basic rate taxpayers are normally charged 20% tax on their interest, and this is often not factored into the account interest rate advertised by the bank. So be sure and take 20% off of your interest calculation. For 'additional rate' taxpayers there can be up to 40% or 50% tax.

Sam Jackson

Money Dashboard

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