Types of Savings Account
There is a further variation on the type of account where the saver may have to commit to keeping his cash in the account. Other such accounts do not place such stringent requirements. The type of account that we will now consider is the Fixed Rate Savings Account.
The Fixed Rate Account
With a fixed rate savings account, the savings institution offers the saver a rate on his savings that will be fixed for a given period. This type of account is particularly useful when interests rates are likely to fall. Conversely, if interests rates rise, the account may well result in less of a profit that a variable rate savings account, such as a notice account, particularly if there are prohibitions against withdrawal for the account. Some advantageous interests rates can be found with these accounts, particularly those requiring that the funds remain in the account. Larger investments usually receive higher interest rates and the maximum investment can be relatively large. Interest can be taken monthly and this is not counted as a withdrawal from the account.
The interest is normally paid through a bank transfer to the savers
current account either with the same savings institution or by
direct debit to an outside account.
If you are able to invest a large sum into a savings account and are confident that interest rates are not likely to rise a fixed rate
account could be a great savings account that would be appropriate for you, especially if it had no penalties against withdrawal in the event that interest rates were to take you by surprise.
We will now look at another means of saving, which can be either at a variable interest rate or a fixed term but which provides the extremely useful benefit of producing a tax free return. This is the ISA, or Individual Savings Account.
The Cash ISA
An individual savings account, The Cash ISA allows savers to pay a certain amount in each tax year, the interest upon which will not attract any UK tax. Although the interest rats are not likely to be as high as notice accounts or fixed rate accounts or fixed rate bonds, which we will discuss below, the fact that the rates are both gross and net on income tax boosts them by 20% for the basic rate taxpayer and by 40% or 50% for the higher rate taxpayer.
Cash ISAs are therefore extremely beneficial to those with
significant income and of some use to those on basic rate tax. For
those with only a modest income, it is worth shopping around to
ascertain whether a better return, even if this is taxable, could be
obtained through a regular saver account, for example. It is likely
that the saver will be able to invest more in a regular saver
account in a year than into an ISA, the limit upon which is
presently £5,100.
As mentioned above, ISAs can attract either fixed rate or variable
rate interest.
It should also be stated that Equity ISAs are also available but
these go beyond the scope of this article and will feature elsewhere
at some stage.
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