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Saving tips for 2012
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What are the different sorts of savings accounts?


Savings make your future life better
Savings make your future life better
What are the different sorts of savings accounts?

"There are several types of savings accounts," explains John Lawson, personal finance expert at Standard Life.
  • Short-term - often called 'instant access'
  • Longer-term often called 'notice accounts', where you have to give advance notice of withdrawals
  • Fixed rate bonds - typically a fixed interest rate over periods ranging from 6 months to 5 years on the condition that you don't touch your money during that period.
"Any interest you earn on these kinds of accounts will be taxed at the highest rate of income tax you pay."

So if you pay basic rate, you'll get taxed 20% on the interest. Then again if you don't pay tax, you won't be taxed.

If like the majority you're being taxed then a tax free ISA is your best bet for starting to gather some savings.

"Cash ISAs allow you to save up to £5,340 a year without paying tax on the interest." says Lawson, "all of these account types [above] are also available as cash ISAs."

Whether you go for short-term, longer-term or fixed rate bond is a matter of personal circumstance.

"Often, fixed rate ISAs provide the highest interest rates." says Frederic Nze, CEO of Oakam. "If you do not need to touch your savings for a year or two, this is a good idea.

"However, if you think you will need to dip into your savings, I’d advise that you research an easy access account with a high interest rate."

Lawson also advises shopping around to get the best deal. "Bear in mind that some non-ISA accounts may still provide higher rates of interest than some Cash ISAs even once you’ve taken into account the tax you will pay," he says.

Also remember if you don’t pay tax, then the added benefit of a Cash ISA doesn’t apply to you and a direct comparison of all rates can be made.

It's advisable to have both a long and short term savings strategy, for example a fixed rate ISA with a high interest rate for your long term goals (buying a house, getting married, baths full of rose petals...) and an instant access account for emergencies where you should ideally keep at least equivalent to three months salary.


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