People save for a variety of reasons; for a rainy day, to accumulate a nest egg, for a special purchase, or merely because they like saving! Accumulating cash is a good financial discipline and in the current economic climate those who have savings will almost certainly be feeling more financially secure than those who don't.
Because people save in different ways for a variety of reasons, banks and building societies offer a plethora of different savings accounts, each offering varying interest rates, notice periods for withdrawals and even differing taxation treatment, dependent upon government legislation.
Individual Savings Accounts (ISAs) offer a tax-free method of saving as the interest earned on the account is not taxed. Every individual in the UK is allowed to deposit up to a maximum of £ 3,600 in a cash ISA account each tax year, and the account will remain tax-free for as long as the government decides to offer the concession.
Children's accounts are usually tax-exempt, but anyone opening such an account will be required to sign a declaration so that the standard rate of tax is not deducted directly from the interest due on the account. However, there is a limit to how much can be invested in a child's account before tax will be taken as a matter of course.
A notification saving account is where a minimum period of notice must be given in the case of a withdrawal, typically 90-days. If the specified amount of notice is not given then an interest penalty will apply, but in return for that lack of flexibility the reward is a higher rate of interest than is normally payable on instant access accounts. The latter usually attract the lowest rate of interest as the account holder can withdraw money freely without notice and without penalty.
In addition to saving accounts there are also a number other saving devices such as fixed-term bonds where money is deposited for a period, typically between two and five years, with withdrawals only allowed under an interest penalty. This type of saving device is ideal for those who can tie up significant amounts of cash for long periods, and wish to watch their savings grow.
But, whatever the motivation for saving, anyone thinking of opening an account should do their research and check which product is best for the amount they intend to deposit, the time they intend to keep it in the account and whether they will need to access it at any point.
Disclaimer: This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.