Choosing a Savings Account

With the huge variety of savings and investment vehicles out there, how does one go about choosing the best option? Today’s markets are more volatile than ever, and investors can easily be spooked by the huge swings in stocks, bonds, and other types of investments. Yet people need a safe, secure place to store some money for an emergency fund or to save for a large purchase like a house down payment, a vehicle, or for schooling. This is where the trusty savings account or high yield savings account comes into play.

Savings accounts are not glamorous. They are the Steady Eddie of investments, paying a consistent rate of return and offering you instant -or almost instant – access to your funds in exchange. Many accounts offer instant access, which can be good or bad, depending on the type of person you are. If you have a tendency to spend money the minute you get it, or if you tend to take money out of your account if it’s too easily accessible, you might want to opt for an account that makes you jump through some hoops to get at the money. Let’s look at the account types in more detail.

An Easy Access account provides just what it says – easy access. As noted above, this has the advantage of providing cash to you, when needed, with no penalty and often no fees. Some high yield savings accounts have minimum investments of £500 to £1,000 or even more, so knowing how much you have available for the initial deposit will help you narrow the account types. Definitely look for an easy access account with no fees. Fees can eliminate any interest you earn on these accounts, making it much harder to build a higher balance.

Notice savings accounts may pay a slightly higher interest rate, but their main attraction for many people is that you can’t access your funds immediately. You must give notice to the bank a designated period of time before your funds are freed up for withdrawal. That time period may be as short as seven days or as long as 90 days; the longer the notice period, the higher the interest rate, typically.

A ‘regular’ savings account is often used to attract new customers. In return for depositing a set amount of money every month and taking no withdrawals during the introductory time period (typically a year), the bank agrees to pay you a higher rate than on an easy access or notice account.

Lastly, a cash Individual Savings Account or ISA works just like a building society savings account except you don’t pay tax on the interest earned. There are limits to how much you can deposit each year, and fees and charges can vary. Obviously you’ll want to look for the account with the highest interest and lowest fees.

By evaluating the purpose of your savings and your own habits, you’ll be able to identify the most appropriate savings account for your needs.

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