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What you should know about a saving account
A savings account is a secure interest-bearing deposit account held at a bank or other financial institution. This means that you will get back more than the money you originally deposited. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs.
Banks and building societies will often use the money you save with them to lend to other customers as mortgages, credit cards and loans.
1. Your money is protected in a saving account
In the UK, savings are protected by the Financial Services Compensation Scheme (FSCS), they protect up to £85,000. This means your protection is at a banking group level and not by individual brands.
However, you can have multiple saving accounts in different banks or other financial institutions, this way you can be able to save more than £85,000 and till be protected by the FSCS
2. most saving accounts are interest tax free
Savings interest is paid tax-free and most won’t pay any tax on it at all. Once you have earned interest on your savings up to the limit of your Personal Savings Allowance, you should think about placing any surplus into a cash ISA. This is on the basis that most often savings accounts without an ISA wrapper have higher interest rates than ISAs. You can then invest up to £20,000 per tax year into your ISA without paying tax.
3. can you access your savings?
Before creating a savings account it’s important to know how long you must wait, if at all, to access funds in your savings accounts.
If you have an emergency or need instant access to your savings then you should keep these in easy access accounts so that your money will be available at anytime.
FAQs and Tips For choosing a perfect savings account
Generally, anyone can open a savings account, subject to proving their identity, but you will need to be a UK resident and be at least 16 for a cash ISA and over 18 for other savings accounts. Those younger than this can open specific children’s’ savings account either in their own name or via their legal guardians.
Generally, anyone can open a savings account, subject to proving their identity, but you will need to be a UK resident and be at least 16 for a cash ISA and over 18 for other savings accounts. Those younger than this can open specific children’s savings account either in their own name or via their legal guardians.
There is no limit to the number of savings accounts you can have, but there are restrictions for the number of open cash ISAs you can save into during any one tax year.
It’s often sensible to have a mixture of accounts, for instance, you might want a fixed rate bond for your longer-term savings, an easy access account for your emergency pot, and a regular saver to save up for your next holiday
you can open savings accounts in trust for your grandchildren or open a children’s savings account in the name of their grandchild/ren and contribute to this. Grandparents can also contribute tax-free up to £9,000 each tax year into a Junior ISA, but this has to be set up initially by the child’s parents or legal guardian.
If you have more than £100,000 to put into a savings account, you should be aware, first of all, that you will likely have to pay tax on the interest that you get, as you would breach your personal savings allowance with a rate as low as 1%. To that end, the best savings vehicle for you might be an ISA, where you’ll be able to enjoy the build-up of your interest without worrying about tax.
However, ISAs will only allow you to put in a certain amount per year (£20,000 for the 2020/21 tax year), so you’d still have £80,000 to stash away. With this, you might want to put £20,000 aside for the short term, to be put into a new ISA or added to an existing one the following year, keep some of the rest in an easy access account, and put the remainder in a longer-term bond or even invest it on the stock market depending on your objectives and attitude to investment risk.
Depending on the savings rates at the time, there’s no guarantee that you won’t have to pay some tax on your interest, but the amount of interest you get may just outweigh the tax you’d have to pay – seek professional advice if you’re not sure
While there are a few savings accounts available that are exclusively for people over the age of 50, or even 60, these won’t necessarily offer the best savings account rates. Instead, it’s often best to tailor your savings search according to your financial needs, regardless of your age – you’ll want to make sure any potential account can be managed in the way that you are most comfortable with and that it allows the level of access you desire, and of course make sure you’re getting the best savings rate to go with it.
You can claim benefits if you are saving, but many are means tested and may reduce or not pay you at all if you have a certain amount in your savings account. You and your partner (if below state pension age) can have up to £6,000 before this impacts your benefits payments. This increases to £10,000 for those who are state pensioners. Those with savings above £16,000 will not receive any means tested benefits. Anything between £6,000 to £16,000 will see your benefits reduced by a set amount. Means tested benefits include Income-based Job Seekers Allowance, Employment and Support Allowance, Universal Credit, Pension Credit, Housing Benefit and Income Support.
A fixed-rate account is just a savings account where the amount you earn is set in stone over a fixed time period. However, you can’t usually access the cash during that time, and even if you can, the penalties can be large.
Usually fixed rates are higher than easy access, but if normal savings rates were to increase during that time you’d be unable to ditch and switch to a better payer until your fixed term ended.
This is a specific product that lets you save around £200-£500 every month (maximum deposits vary by account). The main advantage is they tend to pay higher rates of interest than standard deals.