How to Choose a Savings Account by Saffron Building Society
in Finance / Banking (submitted 2010-12-23)
A simple way of looking at a savings account is to consider it a 'rainy day account'. You will normally have one pot of money which is held in a current account for every day spending such as monthly bills and weekly shopping and another account, a 'savings account', where you set aside money for something special.
That something special will be different for everyone. Person A may have a short term savings goal of putting money away to pay for an engagement ring in six months time but Person B may be looking to put down a deposit on a house and have a much longer time frame in mind. Person C may not have a specific savings goal in mind at all but they know that they want to save some money for emergencies such as replacing a central heating boiler or fixing a broken down car.
All of the people above would benefit from having a savings as it keeps their money separated or ring-fenced from their everyday money, meaning they will not accidentally spend it and also by doing so, they will usually receive a better rate of interest.
Savings accounts are offered by a wide range of providers, including building societies and banks. The interest rate you receive is your reward for investing, so you should make sure that you receive a good rate, although the most important aspect is that you should have some savings at all, regardless of the rate.
The interest rate can vary greatly between providers so it pays to shop around. In general you will find that instant access accounts (where you can take out your money at very short notice) have the lower interest rates. Accounts where you commit to saving your money for a set amount of time (a notice or fixed term account) may have slightly higher rates but you will need to let the provider know when you want to take the money out.
It is up to you to decide how long you want to save for and whether you may need to access your money quickly. In the example above, person A is only saving for six months which is quite short term but person B may have a 3-5 year time frame. Person C does not really know when they might need their money for an emergency so all three have slightly different needs.
Some banks and building societies offer special interest rates for people in certain age brackets such as children or over 55s and these are always worth considering if you fit the criteria. Another consideration is the opening balance: some accounts require a fairly healthy minimum investment (£1,000+) to open the account to start with and others require a regular amount to be saved on a monthly basis. Equally, some accounts also have a maximum investment level so if you are looking to squirrel away a lot of money you need to check the details of each account carefully.
Savings accounts come in many shapes and sizes so do not automatically choose your existing bank of building society without checking out the rest of the market. Most national newspapers will write about accounts within their personal finance supplements at the weekend and they often include a comparison table which shows the best offers at that time. Alternatively if you prefer to do online research then try using the following search terms: instant access saving account; notice saving account; fixed savings account; savings bond; online savings account; and children's savings account.
Although you do not directly pay for a savings account you should still consider it a major purchase and shop around in the same way as you would for a car, sofa or holiday. Really make sure you are clear about the product details - not just the headline interest rate - and if you do not understand the small print, then do not choose that account.
