About Instant Access Savings Accounts
While there are many savings accounts on the market many do not offer much of a financial advantage as they offer interest that only matches the base rate set by the Bank of England – currently around 0.5%. If you are prepared to shop around you can find savings accounts that pay competitive levels of interest but still allow instant or "easy" access. Instant access savings accounts as the term suggests allows you to access your money without penalty although some accounts may stipulate a maximum number of withdrawals per year.
For savers looking to access their money regularly, a good instant access savings account will offer flexible withdrawal facilities while combining these with a good rate of interest. Although fixed rate bonds or notice accounts offer better long-term rates of interest, they generally do not allow savers to take their money out until the bond has matured or provide restrictions on withdrawals and may apply penalties. The ability to access funds at short notice can be very helpful. This flexibility comes at the cost of greater interest.
Why Choose an Instant Access Savings Account in 2016
Everybody should be saving, and with the unpredictable economic climate, people should keep a nest-egg handy to cover unexpected expenses. Saving is a good discipline to develop - most independent financial advisors recommend keeping the equivalent of three to six months’ salary saved up to provide a financial buffer in case of unforeseen circumstances e.g. redundancy. Instant access savings accounts provide a good home for short term goals, such as a holidays or school fees although you may also want to consider notice accounts and fixed rate bonds for timescales greater than 3 months.
With the Bank of England Base rate at an all-time low, making sure you are maximising the interest on your savings is as important as it has ever been particularly taking into account the erosionary impact of inflation over time. If you are prepared to shop around it is still possible to earn higher rates of interest on your savings by comparing and choosing a range of savings plans, that suits your needs.
How to Choose an Instant Access Savings Account for 2016
The first thing to establish when choosing an instant access savings account is whether the interest rate is fixed or variable. Bonus rates can be very favourable for savers to place their money onto an instant access account – often offering rates of interest for the first few months, and giving the providers an attractive rating on comparison websites - but providers often lower the rate shortly after, reducing the competitiveness of the interest gained during this time and rely on savers not to notice the drop.
Within variable-rate savings accounts, the rate of interest on any account can go down as well as up. For the saver, this means it is important to constantly monitor the performance of the savings account and be prepared to move to a better-performing account. An account paying 3% AER may have a bonus which could represent more than half of this rate e.g. 2% payable after 12 months. After this time the rate would drop to 1% AER - not so competitive! While this account provides a good rate initially, you need to consider shopping around for a better deal after 12 months so relies on you being proactive to ensure you are maximising interest return.
What you should be aware of when using an Instant Access Savings Account for 2016?
- Initial rates that include a bonus may seem less favourable after the first year – be prepared to move your money at the end of this period as future rates will drop.
- Offers from Internet-only banks are sometimes preferred as these providers do not have to maintain a high street presence, minimising overheads. However, if you are not technically confident, maintaining an account over the computer can often be troublesome and you may prefer dealing with a human being in a branch who can answer your questions directly.
- Some accounts can be opened and maintained with a minimal deposit – often as low as £1 – but many providers will offer incentives such as tiered interest rates to encourage savers to commit more of their money to the account. Make a point of regularly looking at the top 10 instant savings account providers to see who has taken pole position in the league tables – especially if their rates are better than the returns that your money is currently receiving. Use a comparison website to check other providers’ rates, as many savers will be doing the same.
- Interest paid on your savings is treated as income and you may have to pay tax on it depending on your circumstances. If you don’t pay tax you can receive interest gross if you complete tax form R85. Some accounts will pay interest gross and it is up to you to declare any tax owed to the Inland Revenue.
With interest rates at the time of writing at an all-time low the impact in real terms of inflation on your money is not to be underestimated in eroding the buying power of your hard earned cash. Use our savings account comparison tables to ensure you get a good savings rate.
Top Ten Tips for using Instant Access Savings Accounts in 2016
1. Even though you might be attracted by the idea of “Instant Access”, don’t consider the account as a convenient source of regular withdrawals- that is what your current account is for.
2. Keep focusing on a significant purchase that might require rapid access- a new car or a wedding- and let the account work for you.
3. Be vigilant to changes in the rate offered by the provider.
4. Unlike high street savings branches, internet-only savings accounts will not allow you to access your money directly- this will need to be transferred into your current account, and this might not be instant - could take a few days.
5. Check when interest is due to be paid – is it monthly or annually? Is there an incentive to leave your money in the account for at least one year?
6. Check to see if your provider also requires you to open a current account, before opening a savings account.
7. For savers who are not comfortable with internet transactions, it might be preferable to look for a provider that provides branch access options.
8. Check for withdrawal penalties- by taking your cash out early you might risk the interest on your savings.
9. If you have money remaining in your current account at the end of each month it is worth moving it over to your savings account- no matter how little- as this will all contribute to workable funds and help earn interest.
10. Work out how much you are likely to have saved by the end of the year- and the interest that is likely to be paid.