There are many reasons people start saving; from emergency funds to their children’s education. And then there are those saving towards a deposit on their first home, which some estimate could take a low income family up to 30 years to achieve as lenders ask for increasingly hefty deposits.
Whatever the reason it’s important to pick the right type of savings account for your circumstances and although there is no right or wrong way to save, if you choose the wrong product you could find yourself out of pocket, before you choose your account make sure you’ve checked somewhere like moneysupermarket.com to see all the products on the current market.
So let’s take a look at some of the best options available for anyone looking to save towards a deposit…
Easy access accounts
Easy access savings accounts are ideal if you are new to saving as their flexibility means that you can pay money in whenever you want and also make withdrawals without having to pay a penalty fee.
However, this means that, because your money is not ‘locked-in’ for any length of time, interest rates are often not as competitive as on fixed rate products.
But if you are saving for the first time then you may need the added flexibility an easy access account affords you, rather than a marginally higher rate of interest.
Many of the leading deals include introductory bonuses which boost the interest rate for the first year. After 12 months the rate drops so be prepared wit move to another account at that point.
Regular savers account
If you don’t feel that you have the discipline to save using an easy access account – it can be very tempting to just take a little out here and there, or maybe not put as much aside one month – then a regular savers account could be a good option.
These accounts demand that you pay in a set amount each month over a specified period, which is usually one year. If you miss a payment then you will incur a penalty and this should, hopefully, ensure that you keep up to date with your payment schedule.
In addition, there is usually a limit on how much you can save each month so before you open an account you should work out how much you will be able to save and find an account that suits your needs.
You should also check whether the account allows withdrawals to be made as not all regular savings accounts will let you take money out without incurring a penalty charge.
Cash ISA
A cash ISA is also a good option if you don’t need regular access to your money and it also has the added bonus of being completely tax-free, which means that any interest you make is not subject to taxation.
There is only certain amount you can invest in a cash ISA – the limit for the current tax year, ending April 5, 2013 – is £5,640 and, as with other types of savings accounts, they come in various forms including easy access, fixed rate bonds and regular savers.
Different cash ISAs come with different restrictions on deposits, withdrawals and transfers so you should always check the terms and conditions before committing to an account.
Fixed rate bonds
If you already have some savings put aside and are looking for a product that offers a better rate of interest, then it may be worthwhile investing in a fixed rate bond.
A fixed rate bond pays a set rate of interest over a pre-arranged term, usually between one and five years and so even if interest rates drop, you are guaranteed a fixed return on your saving.
Obviously, this can work the other way too and you could lose out should interest rates rise, but at least you know that you’ll be getting a guaranteed return and so can budget accordingly.
When opening a fixed rate bond you can usually only make deposits while that particular bond, or issue, is available, which is usually for a period of between two and eight weeks, and withdrawals are either not allowed or come with prohibitive penalty fees.
And the longer you can leave your money ‘locked in’ the better rate of interest you’ll get.