Savings made simple - Cash savings
Cash is seen as the safest type of asset. You put your money into a savings account and every year the bank or building society should add interest.
How much interest you earn varies, but generally you can expect your money to grow slowly and steadily. The main advantage is that cash is a relatively liquid asset. That means you can get access quickly to either invest or spend it as you wish.
If the inflation rate’s higher than the rate of interest, there’s a risk to the real value of your money. When inflation levels are high or rising, it’s particularly important to shop around for the best rates. First, look for the highest rate of interest, but also consider how much notice you need to give before you can withdraw money.
Current, instant access and easy access accounts are useful if you need cash quickly, but they tend to pay a lower rate of interest or none at all. Some offer benefits like travel insurance and breakdown cover, which can make them a better choice when interest rates are low.
To meet long-term financial goals, think about making regular deposits into a savings account – especially since access to credit and loans has become more difficult. Sometimes these accounts offer rewards or incentives, and many accounts provide a lump sum bonus at the end of the year. Others offer higher interest, provided you commit to investing a set amount every month over a set period.
Cash Individual Savings Accounts (ISAs) are one of the most popular cash savings accounts, because they have the significant advantage that the interest you’re paid is tax-free. The total annual ISA investment increased to £11,280*. Up to £5,640* of that allowance can be saved in a cash ISA. The remainder of the £11,280 can be invested in a stocks and shares ISA with either the same or a different provider.
A competitive rate over a longer period is usually more important than a good introductory rate. Newspaper weekend money sections often review the best buys, and financial websites offer similar information – but aren’t necessarily impartial.
If you have a large sum of money sitting in a simple savings account then you may want to consider investing in the money markets. Banks invest the money in a wide range of essentially short-term deals across international markets. Although they tend to produce a higher return than a savings account, money market funds are also subject to more risk. Check that your money’s protected by the Financial Services Compensation Scheme, which has a limit set at £85,000*.
*figure applies to 2012/13