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Savings Accounts – Putting A Little Aside For A Rainy Day

By: Mark Bartley

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This review looks at the benefits of a savings account. A savings account isn't just a safe place to keep your money, it also means you could earn extra interest on the money you save as well. This interest rate, which dictates how much you earn on your savings, is linked directly to the Bank of England's base rate. Although the base rate has been very low for some time, forecasts are that the rate will rise over the next few months. This means that if you open a savings account now, you could benefit from a higher rate of interest than if you had invested the money in a savings account a year ago.

A savings account has the advantage of paying a higher interest rate than a standard current account. With banks desperate to bring in new customers, some are actually offering rates of interest above that of the Bank of England's base rate, showing a favourable return on your money. You will have to pay income tax on money invested in a savings account, but you can save tax-free by putting your savings into an ISA. ISAs, or an Individual Savings Account, were launched by the Government in April 1999 to encourage people to save and invest. They are designed to help the value of your money grow over time and provide an income. There are two types of ISA, a cash ISA and a Stocks and Shares ISA. The maximum amount you can pay into an ISA depends on your age.

Any disadvantages in saving? Apart from the higher interest rates paid on savings accounts, organising your finances so that you put a little of your money away each week or month means that you can plan ahead and save for higher value items such as a new car or a holiday. However, unless you are prepared to pay a penalty for early withdrawal, the money you put into a savings account is often inaccessible for a specified period of time and cannot be taken out of the account without incurring a penalty. So if you're looking for a savings account, it is best to choose one that, although it may offer a lower rate of interest, allows you to access your money when you need it without any penalty fees.

Because interest rates can fluctuate, outside financial influences may affect your savings investment. You can find savings accounts that have fixed interest rates, but conversely if the Bank of England's base rate goes up and your interest is fixed at a lower rate, you will lose out. As with many financial services, it's a bit of a gamble, so a reasonable knowledge of the financial markets could help you to make a more informed choice as to whether to choose a fixed or variable interest rate savings account.

The advice, as with any financial service or investment, is to shop around. If you think that you may need to access your savings account at short notice, look for an account that does not penalise you too heavily for early withdrawal. If you're looking for a longer term investment, consider an ISA or other form of saving, or an account that gives a good, fixed rate of interest on savings. It all depends on how you want your money to work for you. Putting a little bit aside for a rainy day is a wise move in financially uncertain times, but make sure that the account you choose works for you and both your immediate and long-term plans.

Article Source: http://depositarticles.com/

This and similar reviews by Mark Bartley will help increase your knowledge of savings accounts. Look out for more coverage on saving money in other reviews.

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