If you’re looking to save money and not sure where to put it, some of the financial jargon doesn’t exactly help. Banks and financial institutions often use technical terms to dress up and sell their products and accounts, but those with little to no knowledge can be left wondering.
Terms like interest rate, ISA, fixed-rate and bonds can make finding a suitable savings account understandably tricky. Fortunately, in this guide, we’ll break down some of the jargon and help you to understand which savings account is right for you.
There are a few key terms that crop up when discussing savings accounts, so we’ve explained a few of them below to help you get a basic understanding before anything else:
Interest Rate: Interest rates are the percentage of your saving’s value that you would gain every year just from storing your savings in a particular account. They can vary depending on the type of account you select.
Fixed/Variable Rate: An interest rate can be fixed or variable, meaning that the given rate of interest either stay constant over a set period or change in line with interest rate changes nationwide.
Individual Savings Account (ISA): ISAs are tax-free individual savings accounts meaning that any interest you earn from them can’t be taxed. They range from fixed-rate Cash ISAs to variable-rate basic savers.
Withdrawals: You’ll often see withdrawals or access talked about with regard to savings accounts – this just means how often or freely you can access your savings and if there is any interest rate loss from doing so. Generally speaking, the higher the interest rate, the less you will be able to access your savings without losing interest returns.
Now some of the basic jargon is out of the way, we can look to identifying which account is right for your situation and objectives. There are two main factors you should consider, how much money you have and how likely you’ll need to access it in the short term.
If you’re looking for somewhere to save some spare cash but you might need to dip into it when times are tough or you need to pay something unexpectedly, an easy-access savings account is probably your best bet. These will have low-interest rates so you’re unlikely to see any big returns, but your cash will be accessible and secure whenever you need it.
Some ISAs will offer higher interest rates which are useful if you’re saving for a house deposit or another significant event and you’re unlikely to need access for some months or years. Always understand the terms and conditions of the account though because some fixed-rate ISAs won’t allow withdrawals at all.
If you are sitting on a little nest egg or a fairly substantial sum that you aren’t going to need anytime soon, interest should be of a higher priority because you can earn more on the money that you are depositing rather than just letting it sit there.
Savings bonds offer even higher interest rates but you’ll have to lock away your money for at least 1 year to earn the interest. Think about your goals and money needs and pick the account that fits your objectives.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence