Choosing the Right Savings Products

There are so many different savings products available in the marketplace today, that finding the most suitable home for your money is not always easy.

The best approach is to establish your savings objectives and think about how long you plan to invest for. This will help you find the right product to meet your needs.

Most of us would put a high rate of interest at the top of their list of savings priorities. This makes sense, because the higher the interest rate, the quicker your money should grow. But simply opting for the highest interest rate can carry its own drawbacks, and you might have to make one or two compromises to get the product you want.

For example, are you happy to have your money tied up for the longer term in order to get a higher interest rate, or would you prefer to have access to your money whenever you wanted? You may have to accept a lower interest rate if you’d prefer the flexibility of instant access account.

Once you have decided which qualities are most important to you in a savings product, you will be in a better position to make an informed decision about choosing the best place for your savings. Here’s a brief rundown of some of the savings products currently available.

Individual Savings Accounts

ISAs pay some of the highest returns currently available. Better still, the interest you earn on your savings is tax-free. You can find out more about ISAs in the chapter 'What are ISAs?'.

High Street Bank Accounts

Most of the highest-paying savings accounts are now available over the Internet, and many offer a high interest rates for a set period after you open your account. However, you may need to keep an eye on when this introductory offer will expire, as your account could then be moved to a less competitive rate.

Other savings accounts may impose small financial penalties for withdrawing your money within a specified time period. It is therefore always worth reading the small print on the Terms & Conditions documents to see what restrictions there are on the account, and if you’re still unsure, speak to a financial adviser.

Unit Trusts and OEICs

The stock market is widely considered the best way to grow your savings over the long-term, but you need to give your money time to grow. However, all stock market investments carry a degree of risk, and there’s no guarantee that you will get back your original investment.

There are a number of different types of investment fund, which will pool your money with other savers, managed by a professional fund manager. With a Unit Trust of an OEIC (Open Ended Investment Company) you purchase units or (in the case of an OEIC) shares in a fund, along with other investors.

The value of the units you own will hopefully increase over time as the holdings in the fund rise in value. You can choose to invest a regular monthly amount or with a lump sum, and you have the option of collecting a regular income from your investment, or reinvesting the profits back into the fund to buy more units.

Individual Shares

Although they are subject to short-term volatility, stock markets generally rise in value over long time periods. In contrast, individual company shares can be much more volatile, and if the company goes bust you could lose your entire investment.

National Savings & Investments

National Savings & Investments also has a range of savings accounts and bonds which are particularly useful for higher rate taxpayers.

Because they are backed by the UK Government they also offer a greater level of security than other banks and investment companies. There are many types of National Savings & Investments products available, some of which are tax-free. More information can be obtained from www.nsandi.com.

Which Savings Product is Right for Me?

Deciding which is the savings product for you depends on how long you plan to you’re your money invested, and the level of risk you are prepared to accept. It is generally recommended that if you want to invest for a period of less than five years you should leave the stock market alone and stick to regular savings products, such as a Cash ISA or a regular savings account.

If you are willing to invest for a time period of more than five years you should consider putting your money in a fund, such as a Unit Trust or OEIC, where you can entrust the buying and selling of shares to a qualified investment professional.