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Guide to Savings Accounts

Guide to Savings Accounts

  • Regular savings accounts
  • National Savings and Investments Accounts
  • Child Trust Funds (CTFs)
  • ISAs


Regular savings accounts


Regular savings accounts are designed for people who want to invest a similar amount of money into a savings account each month.


The specific rates of interest you can earn on savings accounts vary between banks and building societies, but most of them offer customers the chance to earn similar types of interest on regular savings accounts. Banks will provide customers with high rates of interest for their regular investors, so long as conditions are met - if they are broken, then a fall in rates will occur.


As with interest that is repayable on loans and mortgages, most savings accounts will either have a fixed rate of interest, or a variable amount that is dependent upon Bank of England decisions. Some banks will offer customers specific deals, such as a high fixed rate for a number of years, which will thereafter revert to a rate based on standard variable amounts. Some regular savings accounts also offer an annual bonus on top of their interest rate, as an incentive for customers to stay with them for a whole year.


Regular savings accounts aren't really ideal for emergency cash withdrawals, as taking too much out could cause a decrease in rates, but they are a good way to make a bit of extra cash on the side, which you could re-invest in a higher interest plan at a later date.

Savings accounts are one of the safest places of keeping your money, as they are not as variable as, say, the stock market, and you are almost guaranteed to make money, especially is you put money into a savings account which has a fixed rate.


National Savings and Investments Accounts


The Government-run National Savings department offers a range of savings plans. National Savings might not offer the most lucrative solution to your savings plans, but any money you invest is capital secure - you can get your money back whatever happens. Many NS&I plans are also tax-exempt, but those that aren't pay interest gross, but savers have to declare this on their tax returns, while fixed rate savings bonds pay interest after the deduction of tax, which can't be reclaimed.


Tax free investment plans currently include:


• Cash-mini ISA - allows customers over 16 to invest from £10 to £3,000 a year.


• Children's Bonus Bonds - you can invest between £25 and £3,000 for five years for anyone under 16 and get guaranteed interest and a bonus on however much you invest.


• Fixed Interest and Index-linked Savings Certificates - allow you to invest from £100 to £15,000 a year over a plan lasting from 2 to 5 years, available to anyone aged 7 or over.


• Premium Bonds - Purchasing Premium Bonds from the Government means that your cash won't earn any interest per se, but any winnings you claim will be tax-exempt. If you choose to trade in your bonds in return for cash, they you will receive the same amount as you invested in them, so the value of your initial investment does not decrease.


Taxable schemes currently include:


• Income Bonds - a portion of your monthly income is paid into a scheme that varies with changes in base interest rates.


• Fixed Rate Savings Bonds - a regular amount is debited from your account, which earns interest at a fixed rate.

• Pensioners Guaranteed Income Bonds - pays out a guaranteed monthly income for the term of the investment.


Child Trust Funds (CTFs)


If you have any direct dependents, a good way to provide a financially secure future for them is to invest in a Government Child Trust Fund plan. Money invested into a CTF is tax-free until the child in whose name the fund is registered reaches the age of 18, when they are free to decide what they want to do with it. Up to £1,200 a year can be put into a CTF by parents, friends or other family members.


Currently, the Government are providing parents with the opportunity to apply for a voucher worth at least £250 as an incentive to start up a CTF - parents of children born after the 1st of September 2002, are living in the UK and qualify for child benefit, are eligible to apply for a voucher.


ISAs


Individual Savings Accounts (ISAs) are savings accounts where you earn tax-free interest; however there are limits on how much you can invest for each tax year. While cash ISAs do not always offer the highest rates of interest, after taxes you may find that you have more left over than you would have done had you invested in a higher-interest regular savings account.


There are two types of ISA available, Maxi ISAs and Mini ISAs. As the maximum investment limit for an ISA is £7,000, you can choose to invest everything in one ISA (Maxi) or two (Mini).


You can invest either cash or stocks, shares, or any investment plan in one of up to two Mini ISAs, but cash and stock, shares, etc have to be kept separate. Maxi ISAs can contain cash, stocks, shares, and investment-based insurance.

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