Types of saving products
There are a number of different savings options available to you that will reflect what you want to do with your money. So whether you're looking for an account where you can access your money quickly or you'd prefer something where your money may be tied in for longer but the potential returns may be better, it's important to choose the right home for your money. Here we look at some of the things you might want to consider.
What do I need to consider when choosing a savings account?
If you are looking for a home for your savings (other than things like pension savings) there are a several options for you to consider. Each savings product has a number of features and benefits, and the following factors are worth considering:
- What's your attitude to risk?
While savings accounts in the main don't carry any investment risk, there is a risk that the money you earn as interest does not keep up with inflation so the value of your savings could be eroded over time.
- Do you want fixed or variable income from your savings?
How important is it that your savings income is a fixed amount or are you happy with an income that may vary?
- Do you need access to the money?
Will you want to access your money at short notice, or could you leave it invested for a fixed term - say 3 or 5 years?
- What level of interest do you aspire to achieve?
Different savings products will pay different levels of interest - both now and in the future.
- What's your tax position?
It may be possible for the interest you earn on your savings to be tax free or almost tax free. But you do need to be sure of your current position before you make decisions that could affect you in the longer term.
What types of savings products are available?
This isn't an exhaustive list, but it covers some of the more commonly known savings products:
- National savings
National savings and investments offer a range of tax free investments, which are all backed by the government – making them completely secure.
- Individual Savings Accounts (ISAs)
There are different types of ISA available, and you can withdraw money entirely free of Income Tax and Capital Gains Tax.
- Lifetime ISAs
A version of the Individual Savings Account (ISA), a Lifetime ISA is available to those ages 18 to 40 from April 2017 onwards. You are allowed to save up to £4,000 a year in this specialised acount, and you will receive a 25% bonus from the government meaning that for every £4 you save, the Government will contribute £1 too. This new type of ISA is designed to help people purchase a first home, and/or from age 60, to use in retirement. There are, however, some conditions of taking out a Lifetime ISA. Want more information? The Gov.uk website has a full section dedicated to explaining how the Lifetime ISA works
- Deposit accounts
Most banks and building societies have a range of cash accounts that offer varying rates of interest depending on the length of time you are able to leave your savings untouched. In general the longer you are happy not to access your savings to make any withdrawals, the higher the interest payable.
Should I save regularly or just put some money aside as a lump sum?
There is no right or wrong answer to this one, and it depends on whether you have funds that are readily available, or a retirement income that enables you to save small amounts regularly. Many of the savings products listed above let you do both, but remember, if the growth on your savings are going to be payable free of tax, there may be limits applied on how much you can save in total.
How much will I earn on my savings?
Interest payable on different savings accounts varies greatly and will depend on the amount, the length of time, the risk associated and the provider that offers you the savings account. Money Advice Service offer a savings comparison calculator and you can always seek out the best rates in best buy tables online and in the financial sections of the press.
Anything else I should think about?
When you speak to a professional financial adviser, it's important to try and have all of your financial information to hand. This will include any benefits you're receiving or other savings / investment arrangements you've made.