Easy access vs fixed rate and notice accounts

Easy or instant access savings accounts allow you to deposit and withdraw money whenever you like, without penalty. They are a useful place to keep your emergency funds but if you have any extra cash, it’s worth considering a fixed rate or notice account, which typically pay a higher rate of interest.

As their name suggests, fixed rate and notice accounts require you to tie up your money for a period of time or give your provider advance warning when you want to make a withdrawal. This is why they tend to offer higher rates.

When fixed rate accounts mature, the cash is often moved automatically into an easy access account. Decide whether you can afford to lock up any of your money or whether you may need to access the funds.

Read the small print – access may not be easy

Easy access sounds simple enough but a number of providers have recently launched market-leading ‘easy access accounts’ that actually come with withdrawal restrictions.

For example, Virgin Money’s easy access double take eSaver paid a top rate of 1.45% until recently. However, it only permitted two withdrawals per calendar year, one of which was for closure.

Always read the small print and know exactly what you’re signing up to before opening an account.

Don’t forget introductory bonuses – diarise to check rates and move cash

A number of table topping deals come with an introductory bonus meaning the rate will suddenly drop after a period of time.

For example, Marcus by Goldman Sachs launched a headline-grabbing easy access account in September 2018 paying 1.5% interest. However the rate included a bonus of 0.15% paid for 12 months so after this time, savers received 1.35%.

Always jot down when you opened the account and when the introductory bonus ends. That way you know when to check the market to find the next best deal.

Set up a linked or regular savings account

Banks try to entice prospective current account customers with a linked or regular savings account. These are savings accounts available exclusively to a bank’s current account customer base.

Linked accounts from First Direct, M&S Bank and HSBC all pay 2.75%, which isn’t as good as the 5% they were paying earlier this year, but is still higher than many other savings products on the market.

A warning though: linked accounts often come with a low maximum savings threshold or low monthly contribution amount so may not be appropriate for people with large amounts to save.

Don’t discount ISAs

One way to shield your money from the tax man is through an ISA (Individual Savings Account), which is tax free year after year.

However, the introduction of the Personal Savings Allowance in April 2016 took 95% of people out of paying tax on interest earned and as a result, the cash ISA market lost its lustre.

The PSA offers basic rate taxpayers the ability to earn up to £1,000 savings income (£500 for higher rate taxpayers), free from tax. Additional rate taxpayers aren’t eligible for the tax break.

But you shouldn’t discount ISAs; they remain tax-free regardless of the interest rate applicable and the amount held.

They also don’t count towards the PSA, so they can be held in addition. This could prove extremely valuable if savers are likely to go above the threshold or for additional rate taxpayers who don’t get a PSA.

Another point to note is on inheriting ISAs. When your spouse or civil partner dies, you can inherit their ISA allowance that they had built up and therefore benefit from the tax-free interest. However, not all providers allow this, so make sure you look at this carefully before you settle on a particular account.

Round up your spare change

Some accounts automatically pull in your spare change, taking away the chore of having to actively save your money.

Digital banks Monzo, Starling and Tandem automatically round up purchases to the nearest pound and transfer the spare change into a savings account.

The Moneybox app also automatically rounds up spending, but the extra money is transferred into an investment account, rather than a savings account. You can choose from a stocks & shares ISA, Lifetime ISA, general investment account or junior stocks & shares ISA.

Consider Premium Bonds

Often considered a more fun way of saving, Premium Bonds, administered by National Savings & Investments (NS&I), are held by more than 20 million people in the UK.

They aren’t like normal savings accounts as they don’t pay interest. Instead the interest that should be paid (currently 1.40%) is used to fund a monthly prize draw with savers given a chance to scoop the £1m jackpot.

The odds of winning for each £1 bond number is 24,500 to one. Savers can hold between £25 and £50,000 and all winnings are tax-free. Another big bonus is that the savings scheme is backed by the government so your money is 100% safe.

Look into a Lifetime ISA if you’re saving for your first home

This is a government saving scheme aimed at first-time buyers and pension savers.

The Lifetime ISA was launched in April 2017 to help people aged 18-39 save for their first home or retirement. Up to £4,000 each tax year can be put away towards a property or pension and the amount receives a government bonus of 25% (up to £1,000 a year).

The funds can be withdrawn free of charge once the account holder buys their first home or reaches the age of 60. Any other withdrawals are subject to a 25% penalty charge on the whole amount.

There are currently five cash LISA providers: Moneybox, Newcastle Building Society, Nottingham Building Society, Paragon Bank and Skipton Building Society but for investors, they have much more choice when it comes to providers, such as AJ Bell, Hargreaves Lansdown, Nutmeg and The Share Centre to name a few.

Consider Sharia savings, they’re not just for Muslims

Sharia savings products have given traditional products a run for their money in the past couple of years, often topping the best buy tables.

Under Islamic principles, savers are forbidden from earning interest or profit. Sharia-compliant products and accounts pay an expected or anticipated profit rate instead.

As well as competitive returns, they also appeal to the more ethical saver or investor as money isn’t used to fund businesses that engage in ‘unethical activities’ such as alcohol, tobacco, gambling or pornography.

However, check whether your money will be protected under the Financial Services Compensation Scheme (FSCS) which protects deposits up to £85,000 should anything go wrong.

Don’t forget Help to Save

The government-backed Help to Save scheme is aimed at low income families, particularly the over three million people in receipt of Tax Credits and Universal Credit.

For every £1 saved, the government tops up the savings with 50p. The maximum that can be saved is £2,400 over a four-year period, meaning the government will add up to £1,200 to the amount.

The latest figures from August reveal that savers deposited more than £31.4m in Help to Save.

One more….save for the kids

You may be starting your savings journey or topping up your amounts, but if you have children, don’t forget you can save for their future too.

There are a range of children’s cash savings accounts (paying up to 4.5%) and Junior ISA accounts (paying up to 3.6%), or you could invest in the stock market for potentially higher returns. Children can also have Premium Bonds, giving them the opportunity to become a millionaire. You can even set up a pension for your child so they won’t be able to access the funds until they’re at least 57.