Investment ISAs are tax-efficient wrappers for long term investments. You may get back less than you pay in as your capital isn't guaranteed and charges may apply. Your personal circumstances will determine how much tax you pay on your investments and returns; tax laws may change.
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Shocking as it sounds your savings accounts could actually be losing you money by paying you a rate of interest that's below inflation. For this reason, if you haven't kept an eye on the return you're getting from your saving accounts, it could well be time to move your hard earned cash to a more profitable home. However, deciding to move is the easy part, choosing a savings account can be more tricky.
There are such an enormous range of good savings accounts available, for children and adults, that knowing which is right for you isn't always easy. So, to make things a whole lot simpler, we explain the three essential questions that you need to ask when looking for the best savings accounts.
This is always the most important question to ask and while it may seem like an obvious one, the answer isn't always as straight forward as it may seem. Getting the best rates isn't always about picking the highest interest savings accounts as, once tax is factored in and bonuses expire, even the best saving account can soon turn into a mediocre one.
If you're a tax payer at least 20% of any interest you earn on your money will go straight to the tax man (40% or 50% of it if you pay your tax at higher rate). The only relief your savings get from this deduction are when they are 'hidden' in an ISA.
You can save up to £15,000 a year in a Cash ISA for the 2014/15 tax year and, as interest is paid tax free, this is the first place you should look to save as great returns are available.
In the past many people found ISAs inaccessible as the regulations that surrounded them were confusing (to say the least). However, in April 2008 they were simplified so that now there is really no excuse not to take advantage of the tax free saving benefits these accounts offer.
For more information on finding an ISA account that's right for you, without having to reach for a calculator, read our guide Understanding ISAs.
In general, regular savings accounts are often the next best place for your money as they often feature headline grabbing savings rates that banks and building societies use to lure in new customers. However, while this type of saving account can give you a really good return they usually come with a whole plethora of restrictions that govern how much you can pay in and how you can access your money so it pays to do your research first.
For more on the benefits and drawbacks of regular savers read our guide How to Get the Most from Regular Savings Account.
Savings bonds and fixed term accounts usually offer a better return than their instant access counter parts and really attractive rates of interest are available for those who don't mind tying their money up for a while. However, this type of fixed account is only ever worth considering if you are confident that you won't need to access your money as it's likely that interest penalties will be applied if you need to make a withdrawal mid term - this would seriously affect the profitability of even the best savings account.
Instant access accounts are next in line and tend to be a much more flexible option as you can get to your money as and when you need it. Compare savings account interest rates and look for the highest return possible but keep an eye out for bonuses that inflate the interest rate for a short while and then drop.
If you're happy to move your money regularly then chasing bonus rates can be a very profitable pastime. To do this you'll need to compare savings accounts on a regular basis. If new best buy savings accounts are introduced onto the market and the savings accounts rates and terms and conditions suit, you'll simply need to transfer your money so that you continually profit from the highest interest savings account available.
However, if this sounds like too much effort and you know that you are unlikely to have the time or inclination to shop around then a savings account that pays a consistently high rate of interest is likely to be more suitable. Accounts that offer rate guarantees are also a very good bet as they give you the confidence that your money is getting a good return until a certain date in the future.
You can get some of the highest rates with social savings accounts, which use your deposit towards a loan for a person who wants to borrow money. They are not covered by the Financial Services Compensation Scheme, so they come with different risks to standard accounts, which we have looked at in our guide to how social lending works.
While interest rates are an undoubtedly important part of choosing a home for your money, it's also important to find a top savings account that's going to let you access your money in a way that suits you.
Fixed term options do often offer the best returns (and tend to be available in anything from 6 month to 5 year terms). However, if you are likely to need your money at all during the specified time frame then it's unlikely that this type of account will be worth your while as the interest penalties typically associated with mid-term withdrawal will outweigh any benefit earned from even the best saving accounts.
For this reason, high interest, instant access accounts are usually a good bet if you need to be flexible with your funds. Both taxable and tax-free accounts are available with instant access so you will be spoilt for choice and should base your decision largely on interest rates when comparing them.
In addition to this, you'll also need to consider how you want to access your money. If you're friendly with your computer then an online savings account is likely to be convenient and providers often offer the best returns over the internet. However, if you value a branch based service then this is something to look out for too as, while maximising your savings is about getting the best return on your money, it's only worth it if you have an account that you feel comfortable operating.
Many of the top savings accounts only pay interest annually, either on the anniversary of account opening or on some other pre-specified date. However, others allow you to take income from your investment on a monthly basis. Some accounts on the other hand offer both options so that you have the flexibility to choose without compromising on getting the type of account you want.
If you're likely to need a monthly income from your money then this is definitely an important feature to consider when you compare saving accounts.
Once you've figured out what type of savings account is going to work for you it's simply down to finding an account that matches your criteria, something that using our handy top ten savings accounts comparison tables should only take a few minutes at most.
However, it doesn't stop there. While it's tempting to sit back and relax once you've made sure that your money is working hard you shouldn't get too comfortable as accounts do change and savings rates do drop.
By keeping an eye on the return your account is providing, taking the time to regularly compare savings accounts interest rates using comparison sites and strategically switching when it stops giving you the best deal, you can make sure that your savings continue to grow as fast as they possibly can indefinitely.
Other useful resources for savings rates:
Everything you need to know about making your savings work hard.
What is your new tax-free personal savings allowance?
How the Help to Buy ISA can get you on the property ladder
Are Premium Bonds a safe investment or waste of time?
Can You Transfer a Child Trust Fund to a Junior ISA?
How Much of Your Savings Should You Put Down as a Deposit?
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