Different Types of Savings Accounts

Written by on September 21, 2012 in Money - No comments | Print this page

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Savings Account Options For Varying Needs

Banks adore clients who save and their high profitability leads to the development of newer, more attractive options for customers. Niche products such as savings accounts that behave like current accounts with higher interest returns are entering the fray almost daily as banks add more frills to their offerings collection. The standard products, however, remain a staple, carrying benefits that have earned their longevity.

In any savings account, the features most often sought are high interests and high flexibility. The level of the latter will be indicated by the minimum amount required in the account, how much notice needs to be given before withdrawal, limits on withdrawal amounts and whether incoming transfers are an option. Generally, there will be a balance between interest levels and flexibility so that accounts with higher interest rates offer less flexibility and vice versa. As competitors strive to retain clients, products improve enormously and, today, both flexibility and interest are offered competitively in the same products by some banks. These accounts vary enormously from bank to bank and aggregators such as MoneySupermarket.com allow you to perform comparisons online.

On August 1st, 2012, the Treasury publicly stated its intention to create a range of simple financial products. It plans to develop frills-free savings accounts that are easily accessible without the complex features that make account comparisons difficult for consumers. There are some products available today that bring ample simplicity to the savings market.

Current Savings Options

An Individual Savings Account allows you to invest or save without declaration of earnings received from interest and return. Any further dividends received are similarly tax free. Flexibility is limited here as money can only be transferred from savings to investments as a whole amount during the tax year. Thereafter, however, it is treated as a direct investment, allowing you to continue to save or invest up to the annual investment limit. In ISAs, the payoff for lack of flexibility is a saving of approximately 20% in tax payments on savings and 40% on investment returns. In certain cases, tax on dividends can reach as much as 50%. Furthermore, capital gains and dividend income tax aren’t declared.

Instant access savings accounts are legally compelled to return all money held without prior notice. These are beneficial for emergency funds so that withdrawals can be used during a crisis. The immediacy of withdrawals differs between banks and high access is likely to be balanced with lower interest. Rates are generally variable with bonus interest rates offered for the first year. Interest often rises or falls in accordance with the frequency of withdrawal.

Notice accounts require prior notice before withdrawal. Their interest rates are usually higher but variable and an interest rate decrease on immediate withdrawal is often levied. They come with an inbuilt conscience in that a fixed amount must be paid each month. Withdrawal regularity is often limited to a set annual number. Those who have already built considerable savings could suffer from reduced interest rates compared to other savings accounts. While rates often appear to be high, they can bring modest returns over the long term because interest is payable only on the amount in the account and not its headline number. Those who have already built a large savings contingent may receive better rates from an account that allows a large deposit with a lower interest rate.

Fixed rate bonds offer a set interest rate for an established time period. This is often higher to balance their lack of flexibility. Withdrawals aren’t instantly possible without having to pay a large penalty fee. These are the accounts to have during economic decline because they remain stubborn against dwindling rates. Optimally, there is a perfect savings account for every eventuality and those at the pinnacle of financial health have more than one reserves product functioning together to fulfill needs best.

This is a guest post.  Article written by Lucy at Money Supermarket.

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