Saving for a Rainy Day
Savings Tips
To be certain your nest egg is growing in the right hands you need to be armed with some basic information. Many savvy consumers are well educated in this sector through years of experience comparing savings performance and moving their money around. However, this information will help you make an informed decision as to what savings deal suits your individual needs by understanding some well used terms and being able to compare like with like:
Interest
Your savings will earn interest at the rate indicated in your agreement. Compound interest is earned when your money grows from year to year earning more on top of previous growth. The AER (annual effective rate) takes into account how often the interest is added, the higher the AER the better the return.
Variable
Most current accounts pay variable interest which means the interest rate goes up or down dependant on the performance of the Bank of England base rate minus the account provider commission/fee. Be prepared to switch accounts if you can get a better rate from another account.
Fixed
The interest rate is fixed for a set period. You win if rates on other accounts fall but if rates on other accounts rise you will be stuck on a poor rate. These accounts usually have a tie in period or penalty to stop you switching accounts so quickly. This is the price you pay for a potential win.
Net/Gross
Interest paid on your savings after tax is taken off is Net. Therefore interest before tax is paid is Gross. If you are a non-taxpayer you can register to have the interest paid Gross; ask your bank or building society for form R85.
Access to your money
Instant access does exactly what it does on the tin. Notice accounts normally have a set period of either 30, 60 or 90 Days, if you want to access your money earlier this may be possible but you will lose the interest accrual for that number of days. Term accounts last for a set period, for example; 2 or 3 years and will not normally offer you any access to this money before the end of term.
Tip: Telephone or Internet online savings accounts sometimes offer better rates than high street savings accounts as the overheads of setting up and administering the account are lower and the saving can be passed on to you. Dependant on the service offered this gives the advantage of being able to manage your savings 24 hours a day online and by phone. Some banks/building society’s offer guarantees associated with their rates for a certain time period so keep your eyes open.
Making a choice armed with all this information is going to depend on your plans and hopes for the future as well as practical requirements. Saving for that whimsical rainy day will hold entirely different requirements to saving for your teenager’s university education. Go online, the internet will offer plentiful information on FSA (Financial Services Authority) regulations for those of you who are interested in the regulation of these products.
To find a good saving account try www.asrecommended.co.uk
The opinions expressed are those of the author only. The material is for general information only and does not constitute legal, financial or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation by an FSA authorised company where the market is FSA regulated.
About the Author: Georgina is a finance & Travel journalist and works for a small marketing company.
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