Among the many resolutions people make in the new year – to quit smoking, do more exercise, spend more time with family – one of the most common is to save more money. Of course, it’s often easier said than done, which is why it’s so important to make a concrete commitment that you can measure month by month.
The easiest way to do this is to open a savings account, which ensures you are saving regularly and that you won’t be tempted to dip into the money whenever you want to.
The many types of savings accounts can be confusing, so we’ve made a quick guide to some of the most common ones below:
Cash ISAs (Individual Savings Accounts) basically offer a way to protect your savings from the tax man (legally!) Normally, you would be expected pay 20 to 40 per cent of the interest earned on your savings to HM Revenue and Customs, but the cash ISA offers tax-free interest.
They may not have the biggest rates of interest, but you will keep all the extra money you accrue.
If you are not a taxpayer, however, there isn’t really any reason to use them if you can find a higher rate of interest somewhere else.
Instant access savings accounts
As the name suggests, instant access savings accounts allow you to withdraw money when you need it.
While that may defeat the purpose of saving in the first place, they’re a good option for people who want to save but might need access to the money they’ve put away in an emergency.
Some issue plastic cards that you can use at ATMs while others require you to go into the bank, and there may be restrictions on how much or how often you can withdraw without losing the interest you’ve accrued.
You could see fixed-rate bonds as the opposite of an instant access savings account: you effectively give up the right to withdraw any of the money you’re paying in until the end of the agreement (usually one to five years).
Of course, the attractive side of this is that they offer some of the highest rates of interest, so you’ll end up with considerably more money overall.
If you have more income than you need to spend and you’re confident that things will stay this way for some time, this is probably the best option for you.