Savings Accounts
A Savings account is an account where you store cash with the main aim of earning interest – unlike a current account, where its main use is day to day financing your life. There are various types of savings account available giving you good choice to satisfy your requirements.
Some accounts having a fixed notice, whereby you can only actually receive money from your account up to 90 days after requesting it – these accounts should pay a higher rate of interest as they give the bank more freedom in what they can do with your money, and you are sacrificing the liquidity of your assets. In emergencies, you can normally access you cash more quickly, but you are likely to have to pay some form of penalty – often the interest that would be earned on the withdrawal during the notice period.
Why should you save?
In the first instance, to protect yourself against emergencies. What do you do if your current account is low in cash, and its three weeks till you get paid, then your car breaks down, or the washing machine stops working? If you have no savings to call on, you will probably have to use your credit card, and pay for the privilege of borrowing money. You could have been earning interest on that money you had to borrow if you had been putting money away in a savings account.
The second reason to save is to start getting your money to work for you, rather than spending your time working for money. Every pound you put away in a savings account will work for you, earning you money 24hrs a day, 365 days a year. And if you get the interest earned on your savings working for you too, you will benefit from compound interest. Despite all his other extraordinary work, when asked about compound interest, Albert Einstein is quoted as saying: “It is the greatest mathematical discovery of all time.”
When should you save?
The simple answer is always – unless you have any outstanding non-mortgage debts. It makes no sense to save money to earn 5% or 6% in a savings account, when you should be using the money to pay off a credit card debt that is charging 19%. In this case, always make your first priority to be clearing your debts before you start saving.
Returning to the concept of always saving, in his book, ‘The Richest Man in Babylon’, (regarded by many as the bible for anyone interested in becoming wealthy) George S. Clason states that you should always save at least 10% of your earnings for yourself. If you do this, you will eventually become wealthy. It may be difficult at first, and you may say you couldn’t afford it, but there are likely to be many people in the same situation as you who manage to live on less than 90% of your income. For many people their ‘necessary’ expenses tend to increase at the same rate as their income. If you can just cut back a small amount, you will start your journey to wealth. Before long you really don’t notice the difference, and your assets that are working for you will begin to quickly grow.
Where should you save?
The first place to put your savings should be an ISA, where you can earn interest in a tax free environment. Once you have used your ISA allowance for the year, where you put your money should depend on how likely you are to need it urgently. The longer you are prepared to commit your money, the more you should earn from it. If you are unlikely to need it urgently, you can probably earn more interest in a notice account. If you are prepared to commit your money for more than 5yrs, you may like to think about investing in the stock market for the potential of much larger gains. Though you should be aware that investing in the stock market means that the value of your investment may go down as well as up.
