Choosing a savings account may seem simple – pretty much every bank has one. But then, there are small differences that can make you money overtime – or push you downwards. Here are a few helpful tips to ensure you gain as much as possible from your savings account.
Come up with a goal
You can have more accounts for different goals. For instance, an instant access account could be excellent for emergencies. On the other hand, you can get a fixed rate account and add money for a house deposit. While you can save without a goal, it helps deciding on something for your savings – it will also push you to save more. Your goal will also determine which type of account is better for you.
Some accounts come with excellent bonuses. They surely look tempting, but these bonuses are temporary. You can, however, shop around all the time and switch every now and then – usually at the end of the bonus rate. It is time consuming, but it could be worth it. If you do not have the time to do it, choose a savings account with a good and stable rate historically. You will have to compare rates over the Internet then.
Considering fixed term deposits
Some products feature unusual structures and provide incredible interest rates, but they may not always be appropriate to save cash. They look like cash bonds, but then, you will need to set some standing orders and bring in the same amount every month, not to mention the necessity to tie up your money for a long period of time. You could get some extra interest though. It depends on when you think you might need the money.
Keep an eye on the taxes
Dealing with taxes and finding the best deals could be a bit tricky if you have no clue what you are doing. If you do not pay income tax, you will have to ask the bank to have the interest paid gross. Otherwise, you will lose money – the tax will be deducted automatically.
On the other hand,, if you pay tax, you will get tax free interest if you opt for a cash ISA. A few calculations are necessary to ensure good final results. Sometimes, you might end up canceling the tax benefit due to some low returns. If the returns are lower than the tax benefits, the deal is simply not worth it.
Stick to £85,000 or less
Stick to building societies and banks that are authorised by the PRA. Then, all the cash you put in will be protected under a so called FSCS – Financial Services Compensation Scheme. The savings protection features a limit of up to £85,000. If you have a joint account, the protection goes up to £170,000.
Now, having more than £85,000 will ruin your protection. Get another account and move the leftovers, then keep throwing money in there. Keep in mind that this limit is not given per banks, but firms or groups. For example, you may have an account with two different banks, but they belong to the same group and your protection is ruined.
Bottom line, these simple ideas will help you find a better purpose for your cash savings. You will know precisely what you save for and everything you do will revolve around that goal. Apart from the self-help part, knowing a bit about how banks and taxing systems work will also lead to better and more informed decisions. More importantly, a bit of education can prevent unpleasant surprises arising out of nowhere.