Which Savings Option?

Savings and investments provide quite a large conundrum when you actually have enough money to set up an account. As a general rule, savings accounts should provide you with much more interest than any current account you have up to a certain amount. Indeed, it’s often the more you put in, the more you will get out of savings. However, there are certainly a lot of options. Savings accounts, high interest deposit bond, ISAs, share dealing: these are just a few of the options that the HSBC website (amongst a whole range of others) currently offers to savers – but which one to get? This article will provide information on cash ISAs, share dealing, and savings accounts.

Cash ISA

An individual savings account is very similar to putting money into a savings account that pays you interest. However, with an ISA you won’t pay tax on the interest, and the limit for contributions to a mini cash ISA or the cash component of a maxi ISA are £3,000 per year. The advantage of cash ISAs is that they often offer better interest rates than many savings accounts.

The difference between the two types of accounts is the limit of money that you can put into stocks and shares. On a mini cash ISA, you can invest a maximum of £4,000 in stocks and shares, while on a maxi  ISA you can invest up to £7,000 in stocks and shares. Of course, investing in the stock market comes with a reasonable amount of risk, so it’s important that you consider a stock option only for the long term. The reasons are given below.

Share dealing

If you’re thinking that day trading on shares is a good way to raise some extra cash, then think again. Shares are a very risky business, and unless you’re an absolute expert in finance there’s no real way that you can predict market movements. There are all sorts of issues that can make your investments go down, as well as up. In actual fact, there’s not all that much difference between day to day share dealing and gambling for amateurs, so it comes as highly recommended avoiding this method if you want to keep your savings intact. The most regular advice says that you should invest in shares for a minimum of five years. Compared to savings account there’s around a 95% chance that shares will perform better over such a time frame. However, if you invest for a significantly short amount of time, say for one year, the chances are slashed to around 50/50 – so there’s a very high amount of risk. With that in mind, you also need to do a significant amount of research in order to select the right company to invest with. However, although you must be careful, if you’ve got some money that you don’t need to touch for a long time then it may well be worth putting it into the stock market – the returns are likely to be significantly higher.

Savings accounts

In the short term, savings accounts offer the best way to invest your savings. Many accounts offer interest rates at around the 6% mark, although this can change. The Bank of England decides interest rates, and should they put them up or down, unless your interest rate is fixed, the interest on your account will probably go up or down as well. However, savings accounts always have interest rates above inflation, and you can be sure that you won’t lose any money as you could with stocks and shares. From the current high street banks, Alliance and Leicester are offering two savings accounts with very good rates of interest. Their direct saver has a very high rate of 6.3%, and you can access your money at any time. Meanwhile, their Premier Saver Account offers 12% interest – see their website for more details