When you were little you might have had a jar or a piggy bank filled with coins that you hid under your mattress or in your closet. This might have been an effective saving strategy when you were young, but now that you are older and your savings fund amounts to more than small change it’s time to start thinking of a different way to hold onto your money.
Your savings are important, and where to keep them should be carefully considered. If your savings are not in the optimal account you could be missing out on a lot of money in gathering interest. Whether your savings are short term, mid-term or long term, it is a good idea to keep them somewhere that is accessible, safe, and will allow them to grow.
The amount of interest that your chunk of savings will accumulate depends on which type of financial institution you use and which type of account you place the money in. You will also need to think about how accessible you want your money to be. Are you saving this amount of money for a long term goal, or do you want to be able to access it at any time in case of emergency? Some bank accounts will lock in your cash, but these will usually offer a much higher interest rate. Those that allow you to access your money will likely not provide a rate that is as high.
As well as regular savings accounts you can also get specialist accounts like these:
Instant Access Savings Accounts
Most banks will offer a simple savings account that lets you access your money at any time without a penalty. This is a good idea if you want your savings fund to be accessible in case of an emergency or unexpected costs. These accounts sometimes even come with a cash machine card so that you can access your money at any time. However, the disadvantage of these accounts is that they will not usually pay as much interest as other options, although they will still pay some. Another drawback is that some people find it difficult to maintain the willpower to save money when they can access it too easily.
As soon as you opt to lock away your money for any amount of time, you will usually find that you can earn a higher rate of interest. If you know that you will not need your savings fund for a longer period you can put it in a notice account. With this type of account, you will need to give the bank a certain amount of notice before you receive your money. For example, with a 90-day notice account you will have to wait three months after requesting your money to be able to access it. If you need it earlier you can access it but will have to pay a penalty. The inconvenience is balanced by the fact that notice accounts usually offer better rates of interest than savings accounts and they can help you avoid the temptation of dipping into your savings.
This stands for Cash Individual Savings Accounts, and with this type of account you will earn tax-free interest. This can be a huge advantage, because you will save a lot of money that you would otherwise have to pay in taxes. However, the disadvantage is that there are limits on how much money you will be able to deposit in one year. To determine whether the Cash ISA is the right choice, compare the gross rate of a Cash ISA with the net rate of an ordinary savings account.
These are just a few of the most popular accounts for your savings. Which one is the best fit for your lifestyle and financial goals?
Jim Dean is a money blogger who loves to write about tips and tricks to save you money.