Making the most of your savings

We all know saving money is important. It provides a safety net for unexpected expenses, for instance when your phone breaks or you need to replace your boiler. But it also helps us to put money aside for more exciting things, like a holiday or a new car, making future plans feel more achievable.

Saving money also means you’re less likely to borrow money and pay interest, helping to avoid debt. And in addition to all of that, knowing you have money saved can make you feel more secure and less worried about financial issues, giving you peace of mind.

What to look for in a savings account?

There are things to consider when looking to find the right savings account to help you achieve your goals.

Interest rate is commonly the biggest thing for many savers, getting as much return on your savings as possible. However, having an account with the correct features and benefits to meet your circumstances, alongside a competitive rate, is more likely to build a successful savings pot.

So what is meant by features and benefits? These are normally, but not confined to the following:

Accessing your Savings

Savings accounts can offer unlimited access or none at all and anything in between. This can be in a form of limited number of withdrawals or a period of notice before you can receive your money. A key consideration when finding a savings account is understanding whether you will need to access the money quickly in the future.

Different accounts offer varying levels of access and understanding these differences can help people to find the best fit to help them achieve their goals.

Instant Access Accounts provide the highest flexibility, allowing you to withdraw money anytime, without penalties. They are ideal for emergency funds but typically offer lower interest rates.

Notice Accounts require advance notice, usually 30 to 180 days, before withdrawals. They often offer higher interest rates in return for this restriction, making them suitable if you can plan withdrawals ahead of time.

Limited Access Accounts encourage people not to touch their savings needlessly. They offer competitive interest rates and/or bonuses for meeting withdrawal requirements but may penalise frequent withdrawals that exceed the limit on the account.

Fixed-Term Accounts lock your money for a set period, usually one to five years, usually in exchange for higher interest rates. Early withdrawals often incur significant penalties. These accounts are best for long-term savings where you don't need immediate access.

Balance Requirements

The minimum and maximum amount you can save will vary depending on the savings account and these are important to be aware of when picking a savings account. There may be minimum balances required to receive interest or once you have a certain amount of money in your account. Considering how much you have or are likely to save is important to make your money work hardest for you.

Additional Benefits

When comparing savings accounts, look beyond interest rates and fees to find extra benefits that can make an account more appealing. Here are some valuable features to consider:

1. Introductory Bonuses: Some accounts offer higher interest rates or a cash bonus for a limited time when you first open them. Remember to check what the rate will be after the promotion ends.
2. Loyalty Bonuses: Banks may reward you for keeping your money in the account long-term or for maintaining a certain balance, higher interest rates or bonuses.
3. Linked Accounts: Accounts linked to other bank accounts, like current accounts or mortgages, might offer rewards such as easier transfers, better loan rates, or extra interest.
4. Regular Savings Boosters: Some accounts provide bonuses for regular deposits or for not withdrawing money for a set period, encouraging disciplined saving.
5. Cashback Offers: Accounts with cashback deals on linked cards give you a percentage of your spending back as a cash reward that you can add to your savings.
6. Exclusive Accounts: Certain accounts offer access to special savings bonds or investment opportunities with better terms.
7. Charitable Contributions: Some accounts donate a portion of the interest earned to charities or community projects, supporting social causes.

These features can enhance your savings experience and provide added value.

Tax on Savings

When comparing savings accounts, it's crucial to understand the tax implications of each option. Interest earned on savings is subject to income tax. In the UK, the amount of tax you pay on your savings interest depends on your income tax band.

Personal Savings Allowance (PSA): This allowance lets you earn a certain amount of interest tax-free each tax year depending on your income and tax status. To understand the limits please visit: https://www.gov.uk/apply-tax-free-interest-on-savings

ISAs (Individual Savings Accounts): ISAs offer tax-free interest, regardless of the amount or your tax status. You won't pay any tax on the interest earned.

Each tax year, you have an ISA allowance (£20,000 for the 2024/2025 tax year), which can be spread across different types of ISAs, including cash ISAs, stocks and shares ISAs, innovative finance ISAs, and lifetime ISAs (insert hyperlink to Individual Savings Accounts (ISAs): Overview - GOV.UK (www.gov.uk) .

Junior ISAs (JISAs): These are tax-free savings accounts for children under 18. Parents or guardians can save up to a certain limit (£9,000 for the 2024/2025 tax year) each year without paying tax on the interest earned.

When choosing a savings account, consider how the interest will be taxed and how it fits into your overall financial plans. ISAs are popular for long-term savings due to their tax-free status. Understanding these tax considerations can help you maximise your savings and minimise your tax liability.

Fees and Charges

When choosing a savings account, be mindful of any fees or charges that could reduce your savings. Some accounts may have monthly maintenance fees, transaction fees, or charges for specific actions, such as withdrawing money early or not maintaining a minimum balance. These fees can significantly impact the overall returns on savings. To avoid these costs, there are accounts with no or low fees and read the terms carefully to understand any potential penalties. Comparing these fees across different accounts will help you find the most cost-effective option and maximise your savings.

Your savings are what you make of them

It is never too late to start saving with no better time to start than now. Monmouthshire Building Society offer a range of savings accounts. Remember to review savings accounts regularly to ensure it is still the right account to meet the goal.