UK Savings Accounts Explained

With the banks offering high-interest deals, now is a great time to open a UK savings account.

If you're a first time saver, however, all the choice out there can make things confusing.

Should you pick instant access over high interest, and how can ISAs help you to save? Here are a few terms you should understand before taking the plunge.

Instant access accounts: If you may need access to your savings in a hurry, then instant access account are the obvious option. Some even come with a cash machine card so you can withdraw money 24 hours a day, while others allow you to make an instant transfer into a current account of your choice.

Many of the best instant access accounts are internet-only - Natwest, for example, offers an initial 6.5 per cent APR. Keep an eye on best buy tables to ensure that you're getting the best rate on savings, and switch cash when necessary.

Notice accounts: If you're prepared to have restricted access to your money, then a notice account may give you a better rate of interest. As the name suggests, notice accounts require you to give notice of your intention to withdraw money. Some will allow you to withdraw prematurely, but only after paying a stiff penalty.

Bear in mind that many instant access accounts now offer rates of interest that are as high as notice accounts, so it may be unnecessary to tie up your cash.

Cash ISAs: Cash Individual Savings Accounts (ISAs) allow you to accumulate interest on your money tax-free. Although they do not always offer the highest rates of interest on the market, they will almost always beat high-paying ordinary savings accounts after tax. The disadvantage is that there are limits on how much you can deposit in an ISA over the course of each tax year.

Regular savings accounts: If you are looking for a savings account to deposit money into on a regular basis, then a regular account may be for you. Many banks offer high-rate regular savings accounts that represent great deals as long as you don't break the attached conditions. Bear in mind that most accounts of this type will limit the sum that you can withdraw each year; so much of your money will be tied up.

And finally: Before opening a savings account, it's worth paying off any outstanding debt. Unless you can find a credit card with a low interest rate, it's usually best to avoid borrowing money against your savings.

Shopping around with companies like Co-operative Insurance will give you a feel for credit card rates, while comparing the interest rates offered by providers like Alliance and Leicester will help you find the best deals on savings accounts.







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