Why hoarding your cash is a bad idea
Even the most basic level of bank security offers a hundred times more protection than what your average home security system could.
That is not even taking into account the far higher risk of you losing your hoard of cash either accidentally or through a disaster like fire or flooding.
While it is true that your home insurance may provide you with some cover for your hoarded cash, there would be a limit placed upon the amount.
This could fall well short of offering you adequate protection if we are talking about your life's savings here.
Cash does not last forever
As paper tends to rot and degrade over time, the only thing you are likely to accumulate by storing your cash in your mattress is dry rot.
Damaged bank notes can always be replaced, but there is something far, far worse than dry rot eating away at your cash.
Without interest to offset it, inflation is busily devouring your cash - reducing its value year upon year as the cost of buying goods rises ever steadily.
How are banks safer?
Lack of cover is not an issue that you will have to worry about when it comes to depositing your savings in a UK-registered bank.
Cash deposits are protected by the Financial Services Compensation Scheme (FSCS).
This scheme acts as a safety-net for your savings and covers the first £85,000 per person, per separately FCA registered institution in the unlikely event that the institution holding your savings goes under.
Hiding your cash away also means you are denying yourself the opportunity of your money making you more money.
Investing your cash in a savings account will mean that you can accrue interest on your deposit.
Even with interest rates currently on the low side accumulating something is still preferable to accumulating nothing.
Before deciding where to put your cash, first have a think about how you want to use it.
Do you need to be able to easily access your cash?
Are you happy to tie it away for years?
Are you saving for something in particular like a wedding or holiday?
It is always important to ensure that you check the terms & conditions closely for things such as bonuses, variable rates and withdrawal penalties.
Once you start thinking about your savings in these terms it will be easier to get an idea of which account will be right for you.
Always shop around to get the best rate for the amount you are saving and to take advantage of any special introductory offers that specific banks or building societies may be running at the time.
Cash ISAs are generally the most profitable way to save as they offer the opportunity to earn tax free savings.
Normal savings accounts are taxed at a rate of 20% for those who pay a basic rate of tax and 40% or 50% for those on a higher rate.
However, the real advantage with a Cash ISA is that any saved funds up to a limit of £20,000 will be paid interest completely free of tax.
Although the interest rates on an ISA do not always appear to compare so favourably with a standard savings account, it is important to remember that your ISA pays gross interest rather than net.
When this is taken into account with the fact that your savings are also tax free, ISAs can offer a far greater return on your money in the long term than a taxable savings account.
Pay off your debts
If you have any substantial debts then it could be a good idea to use your hoarded cash to pay these off before thinking about starting saving.
Traditionally, the interest rates on debts tends to be far higher than the interest rates offered on savings accounts. Because of this, using your spare cash to eradicate your debts first could be a highly profitable move.