Putting money into a savings account every month is no easy task, but if you do manage to put something aside, make sure you find the best savings rates so you get the most out of your savings.
A savings account is a home for the money that you do not need today, but may need soon. It is not as practical as your current account will be, as savings accounts rarely offer features such as debit cards, or cheque books for example, which is why you would not direct your salary or income into them. Sometimes the account can only be opened on-line.
In return, however, you tend to get a better interest rate than you would on your current account. All you need to do now is make sure that your savings account is offering you the best savings rates around.
There is so much information out there regarding savings accounts; at first glance it can look like a minefield.
Before starting your research, the most important thing to establish is the kind of features that you need from your savings account, for example:
- What are you saving for?
- How much do you have in total to put away?
- Might you need to get at your money instantly?
- If not, what is the maximum notice that you are comfortable with?
- Are you prepared to tie up your money for a long period of time?
- If so, how long should that be?
- Should you segregate your funds? Have one account which is instant access, another which has a notice period, and another which is longer term?
Instant Access accounts
Instant access accounts usually have less competitive rates of interest. As a rule of thumb, the more money you deposit in the fund, the higher the rate of interest.
For example, Virgin Money have an instant access savings account which you can open with £1, which gives an interest rate of 2.85% AER. Whereas if you have £1,000 to open the account, Manchester Building Society are offering 3.06% AER.
Easy Access accounts
Easy access accounts can give slightly higher rates of growth. For example, Coventry Building Society are giving an interest rate of 3.15% AER. Again, if you have a larger amount to save you can get a slightly better rate. £10,000 would get you 3.16% AER with West Brom.
Regular Saver accounts
If you do not have a lump sum to invest, and wish to start saving regularly, it is worth checking with your bank. There are lots of ‘secret’ regular savings accounts out there offering healthy growth rates. First Direct, for example, have a ‘Regular Saver’ account, where you can save between £25 and £300 per month, with an interest rate of 8.00%. The sting in the tail is that you cannot access the money for 12 months.
Fixed Rate accounts
The best rates are to be found if you are prepared to tie your funds up for a fixed period of time. The longer the term, the higher the rate. Currently you can get the following if you lock up your fund for:
1 year fixed
- Minimum investment of £25,000: Cahoot – 3.65% AER
- Minimum investment of £500: Skipton Building Society – 3.30% AER
2 year fixed
- Minimum investment of £25,000: Investec – 4% AER
- Minimum investment of £1,000: Nottingham Building Society – 3.85% AER
5 year fixed
- Minimum investment of £1: Birmingham Midshires – 4.65% AER
When you have money put away in any savings account, even if you feel you’ve bagged the best savings rates, you need to be aware of a few points:
- Inflation will eat away at the real value of your savings. The cost of living is currently increasing at a faster rate than savings interest rates!
- Anything above £85,000 with one financial institution will not be protected by the Financial Services Compensation Scheme. Therefore if you are saving more than this, you should spread it across different providers.
- Rates will change over time. It is important to keep an eye on your account to ensure that it is still competitive. Most newspapers will list an ‘at a glance’ table of the best savings rates in their weekend money section.
Henrietta Oxlade is an Independent Financial Planner with Radcliffe & Newlands and MyFamilyClub’s in-house finance sage! She has been advising individual clients since March 1988, which is why many of her clients consider her part of the family. If you want to contact Henrietta, email us on [email protected] and we’ll put you in touch.