How to choose the right savings account?
“Every decision brings with it some good, some bad, some lessons, and some luck. The only thing that’s for sure is that indecision steals many years from many people who wind up wishing they’d just had the courage to leap.” Doe Zantamata
Life revolves around making decisions about every aspect of life, from what food to eat, where to go on holiday, where to study, what career to pursue, and other decisions such as financial decisions. Deciding on the best saving account to open, based on your saving needs, is yet another decision that many make. According to the Bank of England’s findings, approximately more than £200bn was deposited into saving accounts since 2020s lockdowns. However, the cost of living has become more expensive through the rise in inflation, which can have a detrimental effect on several different aspects of life, such as an increase in rent, food, transport, and how much interest you make in your savings. For instance, an increase in inflation has a negative effect on interest rates, as money will decrease in value when you withdraw compared to when you first deposited the money into the account.
What is Inflation?
The rate of inflation has increased over the years, inflation is when money decreases in value. The inflation rate is determined through the increase and decrease of prices and is tracked through numerous indices. Banks use the consumer prices index (CPI) to document the cost of various items such as food, transport, and entertainment. In October 2021, inflation increased to 4.2%, whereas this was 3.1% the previous month, according to Office for National Statistics (ONS).
The interest rate on savings should not be less than the inflation rate; otherwise, your money is not getting the best value for money. If you are getting a higher interest rate that is more than the inflation rate, then investing your money into a saving account is likely to be worthwhile investment. Fixed-rate bonds typically have the best interest rates, but they can have a downside as they have restrictions on withdrawals or extra payments.
In 2020 it was found that 6.50% of people in the UK have no savings; this could be due to not being well informed on the best banking account for their saving needs. The decision of which saving account to choose based on your needs is entirely up to you, but it is essential to be well informed before taking the plunge. So below is some more information on what to consider when choosing the right saving account for your saving requirements.
What saving goals do you currently have?
First, you need to establish what your saving goals are? If you are saving for a short-term goal such as a holiday or new bathroom, easy access accounts are ideal for this saving need as you will not be penalised for withdrawing from this account.
If your goal is a long-term goal, a fixed-term goal may be better. Whereas a regular savings account will be ideal for saving on a more regular basis as you must deposit money every month but give some of the best interest rates.
How often do you intend to access the account?
Before opening a savings account, it is essential to consider how likely you are to withdraw money because most saving accounts have rules around accessing the account, and some are stricter than others. Usually, the more stringent the rules of an account, the better the interest rate you will get on your savings. Although easy access accounts are the most flexible accounts as you can withdraw as often as you need without being penalised, they have lower interest rates than other saving accounts, such as fixed-rate saving accounts. A fixed-rate account will mean you have to keep your funds stored away for a specific time which is great for those with long-term saving goals.
Are you required to deposit a specific amount each month?
Some saving accounts/ building societies may require you to deposit a specific amount to open an account each month; for instance, most regular saving accounts and most other providers require savers to deposit a minimum of £25 per month
Do saving accounts require you to pay tax?
In most cases, savers do not pay tax for their savings if they earn less than £1,000 in interest and are basic taxpayers. However, taxpayers who pay a higher rate have a threshold of £500, and anyone who has a 45% rate of income tax is not entitled to an allowance. Over 80% of taxpayers currently pay tax at the introductory rate in the UK, whilst 13% pay a higher tax rate. Cash ISA is one option that higher taxpayers or those with no allowance could opt for as you don’t pay tax on Cash ISA.
What is Personal savings allowance?
Personal savings allowance works by banks or building society paying all interest gross without charging tax, which means that you can sit back and relax if your collective income from your savings is under your personal allowance. Prior to this system being put in place the old system would have involved the bank or financial institute automatically deducting 20% from any savings interest.
How would the saving interest be paid?
The interest on savings can be paid into your account annually, quarterly, monthly or on a agreed date. The interest could be compounded or ‘paid away’ in your account; the interest has to be paid into another account if your savings are paid away. However, your account balance is included when interest is not paid away. Compounded interest is when interest is added again in the future; this interest is added to your original balance, along with your first interest payment.
What does AER Stand for?
AER stands for annual equivalent rate, which compares saving accounts. AER presumes that you maintain your funds in a specific account for a year while also considering other factors that give a more precise overview than the gross rate.
What are the risks associated with a saving account?
Generally, saving accounts with established banks and building societies are usually considered low risk. The financial services compensation scheme usually protects savings of up to £85,000. However, sometimes returns can be minimal; for those who are less hesitant to take risks, there are other types of investments involving more risk, such as stocks and shares, which could also increase or decrease in value.
Are there any saving apps that can track my saving accounts?
Intellisaving is the best app for finance management as the platform is ideal for integrating and tracking multiple saving and interest-bearing accounts within one single platform. The Intellisaving smart saving account application is also home to many features that make every user’s saving journey run smoothly. Every user has a personalised portfolio with their financial summary that includes balances and returns, a comparison feature that shows the highest interest rates across each saving category (e.g. Regular saving account) at present, a watchlist to add saving accounts that have sparked your curiosity. This app for saving enables users to manage their finances more strategically.
Different decisions can shape our lives in different ways, some change our lives for the better, and some teach us lessons about what paths to avoid in future. Choosing what saving account is right for you is an important decision like many decisions we must make in life, as saving now could be your key to a more stable financial future. As Tony Robben says, “It is in your moments of decision that your destiny is shaped.”
Current advice on choosing the right saving account shows that there are many factors to consider before selecting a saving account that best matches your saving needs, with inflation and interest rate being among the most significant factors to consider when opening an account as these could decrease the buying potential of your money. There is a range of saving accounts for different saving needs, which means that most savers are likely to find a saving account that is the right fit for them. Once you have chosen your saving account, you can integrate the account to Intellisaving to facilitate your saving path through our catalogue of features lessening the weight upon your shoulders. If you choose an account that is not ideal for you, don’t worry as no matter how stringent the rules a bank of financial institute imposes on a saving account, such as having to invest in the account for at least a year, the time will come where you will have another chance, an opportunity to open another saving account that is better suited to your requirements.