Most of us have a current account with a bank – it’s the standard way to receive the money you’re paid, pay for bills and withdraw cash whenever we need it. But a surprising number of people never consider savings accounts. Put simply, these accounts allow you to earn extra money on whatever you save in the form of interest – while current accounts also usually offer interest, it’s much less generous than that of a savings account.
Of course, there is a trade-off to saving your money this way. Savings accounts usually come with a number of restrictions on how often and how much you can withdraw your money, or you may have to give notice if you want to take money out. Others may let you withdraw money as you please, but you will need to maintain a minimum account balance to keep the account open. Take a look at these different online savings accounts to get an idea of the different kinds of accounts there are.
As you can see, savings accounts are best for people who have money they can afford to put aside regularly and aren’t likely to need access to all their cash at once. Even though they’re a good way of making your money work harder, they’re not recommended for people with debts (as the money you save would be better put toward paying off what you owe). However, they are ideal for a young couple saving up to put a deposit on their first home, or a family who earn more than they spend.
Interest on what you save may be paid daily, monthly, quarterly or annually, depending on which provider you’re with – in generally, the longer between payments, the more competitive rates you get. However, don’t forget that if your interest is paid more frequently, you can earn interest on your interest! Most savings income is taxed at 20 per cent, unless you invest in an ISA.
All savings providers in the UK are protected by the Financial Services Compensation Scheme, meaning that if the bank you’re with goes bust or can’t pay your money for some other reason, your savings will be protected – or at least, up to £85,000 for individuals and £170,000 for joint account holders. This gives you peace of mind that if your bank goes under (as they sometimes do) what you’ve put in a savings account won’t be lost.