Savings
At a glance... savings
Financial institutions love savers at the moment, and those with money to put aside will have plenty of products to choose from.
The current credit crunch means banks and building societies are keener than ever to attract savers - it makes their balance sheets look better - and this has led to a range of very attractive accounts.
Guarantees
Cash savers are protected by Government guarantees if their bank or building society goes bust. Savings of up to £50,000 are protected 100 per cent - if your institution goes under, you'll get your money back.
So, although it's unlikely that any of the UK's institutions will go under, taking all of savers' deposits with them, it's wise to take precautions and spread the risk around - put money in different accounts with different lenders.
But the complicated bit is that each £50,000 safeguard is per banking licence, and many financial institutions have a number of subsidiaries or different brand names designed to attract different kinds of customer. If you have £100,000, say, deposited with two different companies, but that share a single banking licence, then only £50,000 is protected.
The recent takeovers and mergers that have occurred in the banking sector makes this situation more complicated, as banks and building societies reorganise. So it's often worth contacting your provider to see how you are protected.
If you have savings with a non-UK provider but you took them out in the UK, then that provider will have to have a UK licence and you will be protected. For examples, UK customers of failed Icelandic banks will receive their money back.
Cash savings accounts
These are the simplest products, but usually the ones that pay the least amount of interest. Very simply, you deposit your savings when you wish, and usually you can take them out when you wish. Some accounts expect you to keep the money in the account for a certain amount of time, or give a specified amount of notice when you want to make a withdrawal, but you'll benefit from better rates.
In the current low interest environment, these accounts are not usually great value. They're best for people who don't have much in the way of savings, or who only plan to put the money in the account for a short term. If you have a significant amount to save, or want long term growth, you're better off going with one of the options below.
Bonds
These are safe options for cash savers who are prepared to put money aside for a specified period of time. Bonds are offered for a specific time - anywhere from three months to 10 years, usually at a set interest rate.
If you want to try and make a little extra money, without losing your initial sum, you could go for a guaranteed with profits bond. These bonds guarantee the return of your original investment at the end of the bond period - and sometimes a low interest rate too - but also try to increase your return, which is not guaranteed.
Cash ISA
A cash ISA is the same as a cash savings account but with the added advantage of all your interest being tax free. Currently you can invest £7,200 in a cash ISA per year, or split it with an equity ISA and invest £3,600 in each.
You're only allowed to contribute to one ISA per year, although you can have other dormant accounts. You can also transfer your ISA to another provider if you find a better rate. Remember, though, that you are only allowed to pay in the amounts above, regardless of whether you take any money from the account.
Equity ISA
Equity ISAs have the same rules as their cash counterparts, but you invest into a fund with your savings. This means that your money is not guaranteed, you'll see the phrase 'the value of shares can go down as well as up' so there is more risk. Historically, equity markets have outperformed cash savings, so if you're in it for the long term you should do better. It is a long term commitment though, expect to hold the ISA for a minimum of five years.
Equity ISAs are, on the whole, less flexible than cash products. You'll usually have to pay in a large lump sum each year, or commit to a monthly payment. And you're less likely to be able to take bits and pieces of your money out without giving quite a lot of notice.
You'll also have to pay a fee, normally one or two per cent of the value of your account each year.
RSS Feed