Sep

20

choosing a savings account

Filed Under savings | 4 Comments

So, millionster asked me which savings account I recommended. I don’t really make recommendations, but I can tell you how I go about choosing a savings account.

First of all, you need to think about the purpose of the account, this will help you determine what sort of restrictions you can have on it. Key questions to ask yourself are:

  • When will I definitely need to access this account?
  • How far in advance will I know I need to withdraw money?
  • Do I have a lump sum already, or will I be making regular payments?

Now you need to think about yourself. Are you happy to access money by post, in branch, over the phone, on the web? Do you need more restricted access to prevent you spending it accidentally? How does this compare to your need for access to the money when it is to be spent? Does it have to be with a bank or building society that you have already heard of?

Once you have determined your restrictions, I find that the best source of the highest paying interest account is money saving expert. At the time of writing this, they and Moneysupermarket say that the best options are:

The interest rate on the regular saver account is 8%, and on the others, its between 5.75% and 6.9%.
Note that for the purposes of this discussion, I’ve assumed that a mini cash ISA isn’t suitable because you already have one. You can do the same sort of analysis to pick the best mini cash ISA, as long as you remember to obey the tax rules.

Sep

19

spiders and savings

Filed Under savings | 6 Comments

I would like to tell you about my foolproof method for getting rid of spiders. Pick them up with a couple of magazines  and then throw them outside. Do not however do this in a manner that causes the spider to somehow get caught up in your hair. Its a very unpleasant experience to run your fingers through your hair, hit something that you think is a leaf and then realise that it has legs. This happened to me a few days ago and I’m still shuddering now. Clearly this spider story has nothing to do with personal finance, I’m only mentioning it because I have a compulsive need to share it with as many people as possible.

Although I posted on Saturday that I don’t think that anyone should rush out in a panic and withdraw their money from Northern Rock, I also don’t think that you should be holding vast sums of money in the bank. Not because they’ve suffered in the recent credit crunch, but because they aren’t the best buy for savings accounts. Its generally worth shopping round for the highest interest rate savings account from any regulated bank or building society. Generally, there’s very little to choose between savings accounts other than the interest rate as the best rates at the moment are from ISAs and instant access account, so there’s no good reason to tie your money up for longer.

I check to see which is the best account periodically, usually every year and then switch my money as relevant. I don’t think that you get anything for being loyal to a particular bank nor for a building society unless you are hoping to benefit from windfall shares. In any case, even if you do want to be loyal, you’ll get more out of your money if you stick most of it into the highest paying account and review it regularly. There’s really nothing more to savings accounts, they are a dull, unexciting but necessary component of any good financial plan.

Jun

7

what is an isa?

Filed Under investment, savings | 3 Comments

ISA stands for Individual Savings Account, a partial misnomer because whilst some ISAs are indeed savings accounts, others are not. An ISA is actually a wrapper round something else (a bit like a gift-wrapped present, the present is the more important thing).

An ISA can be one of two things

  • a savings account
  • an investment account

The sorts of ISAs that are savings account are called cash ISAs and they work in exactly the same way as any other savings account. You put in money, the bank / building society pays you interest and the capital is safe. 

There are only two other real features, one positive, one negative. Looking on the bright side first, any interest earned in an savings ISA is paid tax-free. On the downside, there is a maximum amount of money you may put each year into a cash ISA.

The sorts of ISAs that are investment accounts are usually called stocks and shares ISAs. Through these you can invest in unit trusts, exchange traded funds, bonds, individual company shares… These work in exactly the same way as other unit trusts, etc. You put in money, it is invested, the value may go down as well as up.

There are only two other real features, one positive, one negative. Looking on the bright side first, any capital growth in an stocks and shares ISA is paid tax-free. On the downside, there is a maximum amount of money you may invest each year into a stocks and shares ISA.

The limits to the amount of money that you may put in are currently as follows (financial year 2007-2008):

You may invest up to £7000 in total.

You may invest up to £3000 in a mini cash ISA and up to £4000 in a mini stocks and shares ISA.

Or…

You may invest up to £7000 in a maxi stocks and shares ISA.

There we go easy as pie.

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