The following is a Guest Post by Money Supermarket:
Everyone knows that saving money is important, but many people don’t spend quite as much time thinking about where they are saving it. Choosing the right savings account is very important, as different types of accounts have different advantages and disadvantages to consider. Fortunately, moneysupermarket.com provides a great overview of different types of savings accounts that are available in the UK and taking a look at them can be a great place to start.
It can also be interesting to consider the different types of savings vehicles available in different countries, so you can be more informed about the places people put their cash.
Options in the UK and the US
Both the UK and the United States offer a traditional passbook savings account as one option for those who want to save money. Traditional passbook savings accounts simply involve depositing money into a special account where the money is not meant to be accessed regularly (like it is with a checking account). The traditional savings account may not be accessible from an automatic teller machine (ATM) and you may be limited in the number of withdrawals you can make from it each month.
A traditional savings account usually will pay at least some interest. The amount of interest will vary and can change as interest rates in the country change. Normally, the interest rates will not be high, compared to other types of investments. However, the money will be protected and insured with no risk.
Some traditional savings accounts have no minimum balance requirements, especially those intended for children. Others will require you to deposit a certain amount or to keep a certain amount of money in the account in order to avoid fees. Some of those that require larger deposits or balances tend to offer higher interest rates than others that have no such requirements.
While the UK and the US have some similarities regarding the types of savings accounts, the United Kingdom offers one special type of account that the US does not. This is referred to as an ISA.
An ISA allows individuals in the UK to invest up to a certain amount (currently set at £5,340) each year. The interest earned on the money that is invested is not taxed, unlike interest with other types of savings accounts or investment accounts. This allows the money to grow without incurring the cost of income tax, letting you keep more of what you are earning and providing a better rate of return.
ISAs are a great option and they are now more broadly available, as junior ISAs have also been introduced as well.
Money Market Accounts
The US does not offer ISAs, but it does have its own accounts that provide advantages to savers. One example is a money market savings account. These typically require a higher opening balance and minimum balance. They also pay a higher interest rate than traditional passbook savings accounts do, making them a wise choice for those who can afford to invest the necessary sums to get into the account.
Choosing an Account
Choosing the right account will depend on the money available to you and your financial goals, as well as where you live. Some research into savings will help you to identify options in your local area so that you can make the most informed choice possible as to where your money is best kept.
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