Fixed Deposit Calculator - Bank Fixed Deposit, Fixed Deposits, Fixed Deposit Rates 0 need-to-knows before you pick a savings account A savings account is just a place to dunk cash to earn interest, and save for the future. But don't just go for the headline screaming the highest rate without first examining how it works and what the alternatives are.
If you've costly debts, pay them off before saving If the interest cost of your debt is more than you'd earn on savings (after tax is deducted) you're better off paying down the debt. If you've £1,000 on a credit card at 20% it costs £200 a year, assuming a constant balance. In savings at 2% after tax, you'd earn £20 a year so you'd be £180 a year better off repaying the card. Much more info in Should I Repay Debts With Savings? Quick Questions What if I have a 0% card or a really low rate? Shouldn't I have an emergency fund? If you've got a mortgage, check if you should overpay it before saving This is the same principle as above: if the mortgage rate is higher than the savings rate after tax, and you can spare the cash, overpaying is a solid financial decision. However, there are possible complications, such as penalties for paying too much... Quick Questions Will I always be allowed to overpay and is there a limit? If I overpay my mortgage can I access that extra cash again? Have you used your 2015/16 ISA allowance yet? It allows you to save without paying tax on interest A cash ISA is simply a savings account where you don't pay tax on the interest. Anyone aged 16 or over can put up to £15,240 into their cash ISA during the current tax year, with the threshold rising each April in line with inflation. So the first place for taxpayers to put a lump sum is often an ISA as you're likely to earn a bigger return than a standard account, and the interest is tax-free. However, as some bank accounts and regular savings deals beat ISAs, it is not always so simple. See the Starting Saving guide for full info. Following on from the 2015 Budget, you may have read that you'll be getting a new personal savings allowance, which allows you to earn £1,000 in interest before paying tax if you’re a basic-rate taxpayer, and £500 if you pay higher-rate tax. However, this allowance isn’t available until April 2016, so it’s still important to use the cash ISA in the meantime so you don’t pay tax on interest. And after that, there’s still many people who’ll still benefit from saving in ISAs. Quick Questions Why should I still save in an ISA if I won’t pay any tax on interest? Isn't my money locked away in an ISA? (That's a common myth – it's not) Are you willing to switch bank account? You can boost savings rates Surprisingly, some banks’ current accounts pay a higher rate of interest than their savings accounts – these are currently the top rates available, other than specialised exceptions. You’ll often need to switch bank account to take advantage, and pass a credit check. For a selection, see our top pick bank account section below, or for a full range of accounts, see the Best Bank Accounts guide. Quick Question You said to put cash into an ISA, now you're telling me a bank account's best. Which is it? Can you put money aside each month? Consider a regular saver This is a specific product for putting £10-£500 in every month (maximum deposits vary by account). If you want to save more, combine a few. The main advantage is they tend to pay much higher rates of interest than standard deals. For more details and best buys, see the full Regular Savings Accounts guide. Can you lock the cash away? Fixed savings give a (slightly) better return You may want to consider getting a fixed rate savings account where the amount you earn is set in stone over a fixed time period. However, you can't usually access the cash during that time, and even if you can, the penalties can be large. Usually fixed rates are higher than easy access, so they can be good deals. However, if normal savings rates were to increase during that time, you'd be unable to ditch and switch to a better payer. See the full top fixed rate savings section. If you're 65+, Government-backed Pensioner Bonds are available, with a 2.8% AER rate for one year, 4% AER for three years, smashing standard fixed savings. Full info, pros & cons in the Pensioner Bonds guide. Up to £85,000 in savings per person is safe in UK-regulated accounts Ten years ago, we wouldn’t have had to stress this so clearly. No bank had collapsed in 100 years, but then the credit crunch and global market turmoil hit. After the calamities that hit Northern Rock, RBS, the Lloyds group, Bradford & Bingley, Icesave and Kaupthing, every sensible saver should ask: "Is my money safe?" Provided the money is in a UK-regulated bank or building society, it's protected under the Financial Services Compensation Scheme (FSCS) for up to £85,000 per person. Read more in the Are My Savings Safe? guide. Quick Questions What counts as UK-regulated? You pay tax at the same rate on savings as you pay on what you earn Unless your combined earnings and savings interest are under the £10,600 personal allowance (it's higher for over-65s, see the Income Tax Checker), you'll pay tax on your savings interest (apart from cash ISAs and a limited number of other products). Interest rates are usually quoted before tax, so basic rate taxpayers need to take 20% off the rate; for higher rate taxpayers it's 40% and for additional rate taxpayers 45%. Ditch and switch after introductory 'bonus' rates end These are temporary interest boosts to attract new customers. They're actually a good thing for many, as they effectively act as a minimum rate guarantee during the introductory period, promising you at least some interest. But it is vital to diarise the end date and switch as soon as the bonus ends, so you don't languish on a rubbish rate. Always know your account's exact name and the rate it pays as some try to flog you a similarly named deal at bonus-end. In a couple? Put savings in the name of the partner who pays less tax If one of you pays a lower rate of tax than the other, it's financially worth considering whose name you save in (but ONLY if you trust them). Put it in the lower rate taxpayer's name and you'll get more interest. There's nothing stopping married couples or civil partners moving money between them. If you're not married, there's no tax on giving your partner a 'gift' – though once the money goes across, be aware it becomes their cash, not yours. The only extra issue here would be inheritance tax. If the person who gave the cash dies within seven years the surviving partner may be charged tax. Plus, if you're on a low income (under £15,600), including any interest you earn from savings, you can now register to get all savings interest paid gross - that is, the bank won't take tax off before paying it to you. For more information, read our quick tax-free savings briefing.