How to choose the right savings account
Everyone should have a savings account, no matter their financial situation. Having a safe place to put aside any spare cash can really give you more security in life, but with so many options to choose from, how do you know which account is right for you? Whether you're already a saver looking to switch your provider or someone completely new to building an emergency fund, this blog can help you make the right decision the first time around.
Probably the first thing you should think about is the amount of interest you're going to be making on the money you set aside. You are, after all, putting your savings there to accumulate. However, with interest rates being at an all-time low it can be tough to find accounts that make saving worth your while. You could consider choosing individual savings accounts (ISAs), which typically offer better interest rates than instant access bank accounts. Stocks and shares accounts often have the highest rate of interest but also involve an element of risk, while other accounts geared towards people looking to buy a home will offer an impressive bonus.
There are savings accounts that will reward you for leaving your money in them for extended periods of time. This means you won't be able to withdraw funds for a number of years to make the most of increased interest rates. Consider if this is something that you're financially able to do, because if you do need to withdraw money, you might lose any interest you've made. Never put your emergency fund into an account with restrictions, as this money should be easily accessible to you at a moment's notice.
Frequency of saving
Do you set aside a little money every month or do you have a lump sum you're looking to make some interest off? Some bank accounts give you extra interest when you save a certain amount each month, but others can only be opened with a large amount of cash. Remember, you can open more than one savings account to suit your needs, you don't need to limit yourself.
Purpose of saving
Think about why you're saving money. Having a goal in mind can make it easier to choose the right account, especially if this goal has a timeline. Are you hoping to buy a house in the next five years? Or maybe you're setting aside cash for retirement. There are specific accounts for both these life events that could give you a little extra boost.
If you have children you might want to start setting aside money for them when they grow up. There are lots of bank accounts designed specifically for this purpose, which can help you to differentiate these funds from your own savings. Many children's savings accounts will automatically transfer to your child once they become of age, making it even easier for them to make the most of their new funds when the time comes.