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Expert Guidance On Creating Your Future
20 Years experience as an IFA
Making Your Money Work Harder
Just like you need petrol to run a car, money provides you with the means to live your life. Big purchases, holidays, a wedding, emergency reserves to dip into if out of work or made redundant, tucking away some spare cash aside regularly makes good money sense.
Picture this, you've just landed a cash bonus or been left a sum of money in a will, what saving vehicle will you choose? There's quite a selection, each offering different terms and incentives.
Shopping Around to Save
The first question you should ask yourself is; how quickly do you need access to the money? Would you be prepared to forgo instant access for a higher rate of interest?
Talking to an independent financial adviser will help you:
- decide which saving facilities and features are relevant to you;
- pinpoint what you are saving for and how much you'll need to set aside to reach that goal;
- compare the cost of any debts you have accumulated against the interest you are likely earn in savings
- source the most tax efficient savings account.
To discover new ways in which you can make your money work more effectively, contact us today.
Bank & Building Society Accounts:
The first step towards a safer financial future
The usual place for squirreling away some cash for emergencies, or to fund future activities, is with high street or online banks and building societies. There's plenty of choice, and unlike other investment decisions, these are generally low risk saving channels.
Warning: Doing nothing could seriously affect your wealth
By doing nothing with your spare money, inflation will gradually erode the value of it. All the time your money is earning no interest, the cost of goods rise. But with the value of your money remaining the same, you will be able to buy less. Savings earning interest can help to offset the effect of inflation.
Questions worth asking yourself before making any savings decision include:
- What interest rates are offered to accounts in credit?
- Are there any account charges, and for what?
- Can you manage the account online?
- Is there a minimum opening balance?
- What introductory offers are there?
- Do they offer preferential rates on other financial products to account holders?
But when it comes to saving, choice prevails. Each account type has plus points and pitfalls, depending on the amount you are saving and how quickly you need access to your cash:
Instant Access Savings Accounts
|What's good? Gives immediate access to your money. |
No need to give notice or incur any penalties.
|What's not? Interest paid tends to be low.|
|What's good? Enables you to withdraw your money provided the required notice is given, which can range from 30 days to four months. |
Better interest rates than instant access savings accounts.
|What's not? Although flexible, in that they'll usually let you withdraw your money instantly, penalties are usually charged. You also usually need a significant sum in order to open one.|
Regular Saver Accounts
|What's good? |
Disciplines you to save a certain amount of money every month, usually from £10 upwards.
Decent interest rates.
Flexibility to vary the amount saved.
|What's not? |
May charge penalties for frequent withdrawals and often limit the number allowed each year.
|What's good? Money is saved for a specific period of time, ranging from one to five years. |
Higher interest rates, often compounded.*
|What's not? During the term, withdrawals are restricted. |
If withdrawals are permitted, the penalties can be high.
If you are serious about building up a cash reserve, some good advice now could be worth more in the long-term. Contact us today to discover if your savings vehicle is looking after your best interests.
Cash ISA: The tax efficient savings account
ISA stands for Individual Savings Account. If you're a taxpayer and looking for a savings product that won't charge you tax on any interest accumulated each year, Cash ISAs work well. In comparison, most ordinary bank and building societies savings accounts will require you to pay tax on interest earned.
How do they work?
Cash ISAs are pretty straightforward, and no different to regular savings, instant access or notice accounts. They are simply a tax-efficient wrapper for cash deposits, enabling you to save without paying tax on the growth of your savings. Available from most banks, building societies and investment companies, the benefits to taxpayers include:
- igher interest rates.
- No tax deducted on interest paid
- Quick access for short-term savers without losing the tax relief.
- Much lower risks than other investment channels
Are there any limits?
You must be aged 16 or over to open a Cash ISA. It is important to note that only £5,335 can be saved in any one tax year. The tax year runs from 6th April to 5th of April, every year. So if, for instance, you deposit £5,335 into your Cash ISA at the beginning of the tax year, but decide three months later to withdraw £1,500, you can't put any more money into the Cash ISA until the following tax year.
Things to remember:
- No notice, penalty free Cash ISAs may not offer the highest interest rates.
- Some high rates only apply to savers who deposit the full £5,335 and don't touch their savings until the ISA has matured.
- If you decide that you would like to invest in stocks and shares as well as cash deposits, you can open a stocks & shares ISA, which allows you to invest up to £10,670, less the amount invested in cash, in any one tax year.
- Once you've set up an ISA, it is possible to move it. But make sure you follow set procedures or you could lose the tax benefits.
Are Cash ISAs suitable for everyone?
Non-taxpayers, particularly young people and children may find traditional savings accounts offer them better interest rates. You'll need to register for gross interest by filling in an R85 form, available from your saving provider or tax office.
To discover more about ISAs or to talk over other tax-efficient savings options if your ISA limit has been reached, contact us today.
Compound Interest Explained
Regular long-term saving brings a bonus called compound interest. In other words, your interest earns its own interest.
Just imagine you saved £100 per month for 15 years. Without interest, this would give you an £18,000 pot of cash. But with interest compounded monthly at the rate of 6%, in 15 years, that would be worth £29,082.
0% interest (£)
4% interest (£)
6% interest (£)
8% interest (£)
Total interest after 30 yrs
Approximate value of regular savings of £100 per month over time with compound interest.
AER stands for Annual Equivalent Rate and is used by savers to compare the interest you can expect to earn on different savings account funds. The percentage of interest is rolled up and paid at the end of each year. AERs must be published on all advertisements. Note, the quoted rates and AER can vary.