The good news is, there are a lot of different accounts out there for a new saver to choose from. The bad news? You’re the one that’s going to need to sift through them to decide which is best for you. It’s worth doing, since this will help you ensure that your money is being saved effectively. So to cut out some of the hassle, we’ve put together this short list of questions that will help you consider what type of account you should opt for.
What is the money for?
Before you start building a savings pot, it’s important to have some idea of what the money will eventually be used for. Is it for a short-term goal such as a holiday or a car? A bigger, mid-term project such as buying a house? Or is it money that you want to leave untouched until the distant future of retirement? Some savings accounts are designed with a specific goal in mind: Help to Buy or Lifetime ISAs, for instance. Others offer higher returns but only if you leave the money untouched for a certain length of time. That might be perfect for a retirement fund but less than ideal for holiday spending money.
Do you need emergency access?
If you don’t have a separate emergency fund already then the answer to this question is probably yes. Simply ask yourself what you’d do if you suddenly needed to find a relatively large amount of money in a short space of time. If the answer is ‘raid the savings jar’, then you need to make sure that you opt for an account that lets you withdraw money at any time without incurring a charge.
Is this money that you can afford to lose?
For savers who already have a comfortable emergency fund set aside, it might be time to do something more exciting with your money. If you have money that you can afford to lose and you want to see it grow quickly, then you could consider investing rather than saving. However, this is always a riskier option so we recommend seeking professional financial advice, especially if you intend to invest large sums. What counts as a large amount? That’s different for everyone, but as a rule of thumb, you should speak to an adviser before investing money if losing that money could negatively impact your life.
Do you need to manage the account online?
This may sound like a no-brainer… aren’t all accounts managed online these days? But actually, if you’re prepared to do things the old-fashioned way – which is to say, in person – then you might be able to get a better interest rates. There are several branch-based accounts available, and what you lose in convenience you make up in higher-than-usual savings rates. Don’t underestimate how important that convenience can be though, especially since the difference in interest is usually only marginal.
Would you like to automate savings?
Many challenger banks and even some of the bigger names now often ‘save the change’ accounts. These automatically round up your purchases to the nearest pound and transfer the difference into a savings account. Not essential for most people, but it can be a nice way to get started – and if you’re torn between two similar accounts it could the feature that settles things.