Top Tips For Choosing a Savings Account
If you have some cash you want to make the best use out of a savings account may be the most suitable option. There is some valuable information you need to know before you look at what savings account will be the better choice for you.
In the event, you earn more than the limit the tax will be taken via your tax code. If you file self-assessment returns, you will need to declare amount much you earn.
Pay Off Debts Before You Start Savings
If you have debt and the amount of interest, you pay on this is more than you earn from savings accounts you will be financially better off if you pay the debt. If you have £2000 debt on a credit card at 20%, it will cost you £400 a year in interest. The same amount in savings at 2% will earn you £40, so you will be £360 better off if you repay your credit card debt.
Married or have a partner? Get an Account For The Person Who Pays Less Tax
If your partner is on a higher tax code than it will make financial sense to make an account in your name as you pay less tax and can earn more on interest on the account without paying tax. If you are married, there is nothing to stop you moving money between each other.
If you are not married, you can give the money as a gift but remember once it becomes cash it is legally theirs so only do this if you completely trust them.
Have a Mortgage? Overpay Rather Than Save
Following the same advice as above if your mortgage interest rate is larger than your savings rate, overpaying on your mortgage might make better financial sense. Remember to check if you will be charged any over payment fees and any other fees.
Move To Introductory Bonus Accounts
Moving to a new savings account can give you a bonus interest rate for a limited time. These will guarantee a minimum rate during the set period so that you will get some interest. But you should always make a note of the account name, and when the bonus interest amount ends, so you don’t end up with a reduced rate. Once this time comes, move to another account to retain a good rate.
Make Sure You Use Your ISA Allowance
A cash ISA is open to anyone over the age of 16, and you can put up yo £15,240 per year. With this account, you will not pay any tax on the interest you earn.
Switch Bank Accounts
Banks have started to offer better rates of interest than savings account to get you to switch. These may reduce due to the Bank of England’s base rate cut.
Savings Account are Tax Free
Before April 2016 you would loose 20% in tax on any interest you earned from a savings account and would automatically be taken out. So you for every £100 in interest you earned, you would lose £20. This has since changed:
- This not only from savings accounts but for all accounts such as current accounts. Share dividends will not be included.
- If your payable interest if over the limit you will pay tax on this at your current taxable rate but only on the amount of the limit.
- People who pay the based 20% tax rate can earn £1000 a year of interest tax-free.
- Individuals who pay the higher 40% rate can receive £500 a year in interest tax-free.
- Anyone paying the 45% rate will be taxed on all their interest amount Premium bonds, Cash ISA’s do not count towards the £1000 or £500 limit.
- All interest earned will be paid without tax taken off.
Consider a regular saver if you can put money away each month
A Regular Savings account is for putting in £10-£500 every month. You can save more be combining multiple accounts. These accounts tend to pay higher interest rates than their standard account alternatives.
Fixed Savings Accounts For Long Term Savings
A fixed rate savings account may be an option for those willing to keep money set aside for a longer period. Interest rates are fixed for a set period, but you won’t usually be able to access the money you put in until the time has passed.
Often fixed rate accounts offer higher interest rates than easy access but if standard savings account interest rates increased you would not be able to move the money to a better deal.
UK-regulated Accounts Protected On Up To £75,000 Per Person
If your money is in a bank, it is protected by the FSCS (Financial Services Compensation Scheme). This is covered for up to £75,000 per person and is set to rise to £85,000.