Top savings accounts for building a rainy day fund
Financially savvy Brits are saving £310 on average each month – or £12 billion collectively – new research has revealed.
More than three-quarters of people (76%) of people are putting money away for a rainy day each month, with nearly half of consumers (48%) using a regular savings account, according to Moneysupermarket.com.
Those aged 18 to 34 – perhaps due to a desire to save for a house deposit – were the most conscientious when it came to squirreling away cash, saving on average £438 a month, while those aged 34 to 54 put away £297 and the over 55s £225 a month.
Meanwhile, because of low interest rates, more than a fifth (21%) of Brits are willing to take some sort of risk with their money in order to gain better returns. Some 13% have invested in a stocks and shares Isa.
However, low interest rates have also led to some consumers being put off saving. Some 17% said they have chosen to put less money into their savings, while 16% admitted they withdrew cash from their savings and spent it because of poor returns.
The best rates
If you are fortunate enough to be in a position to save, then according to Moneywise.co.uk/compare, one of the best regular savings accounts on the market is West Bromwich Building Society Fixed Rate Regular Saver, which will give you 3.3% on your cash for 12 months up to a maximum of £1,200, while Buckinghamshire Building Society's Simple Regular Saver comes with an AER of 2% on all savings up to £400,000.
If you are looking at a cash Isa, then Nottingham Building Society's Isa (Issue 5) comes with an interest of 3% over the tax year, up to the maximum Isa allowance of £15,240, while Coventry Building Society's Isa comes with an AER of 2%.
If you are over 65 then you may want to consider NS&I's popular Three Year Growth Bond, which also comes with an interest of 4% over the 36 months term. The bond is on sale until 15 May so you'll have to act quickly if you want to take advantage.
Check out moneywise.co.uk/compare the best savings accounts for you.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.