5.5 Choosing savings products

What are the product features that people need to consider when choosing a savings product?

• Return

• Inflation

• Tax status

• Accesses/term

• Frequency of deposits

• Operation

• Safety

• Provider

• Eligibility

How can people choose the most appropriate savings product?

Need to consider how these features match their personal circumstances, such as their need to pay bills and have funds for emergencies, and the timing of their wants and aspirations

Return

Options: AER paid (the gross amount)

Considerations:

• Is the AER higher than the other savings options?

• Some products are tiered with larger amounts of savings earning higher AERs

Inflation

Options: An AER that is higher or lower than the rate of inflation

Considerations:

• An AER is higher than inflation will maintain the purchasing power of the money saved

Tax status

Options: Tax-free ISA or interest paid gross (most savings accounts)

Considerations:

• ISA limit for the tax year

• Cash ISAs are safer than stocks and shares ISAs

Access / term

Options: Instant access accounts

Considerations:

• Money is available whenever the saver needs it with no charge, but the product may have a lower AER than notice or fixed accounts

Options: Notice accounts

Considerations:

• Require the saver to give notice - that is, to warn the provider a set amount of time before withdrawing money, such as 90 days

• Usually pays higher AERs than instant access accounts

• Failing to give notice usually results in the loss of interest earned during the notice period

  
  

Options: Fixed accounts, also known as bond

Considerations:

• Fixed AER for a set period of time such as six months or two years. Savers know what return they will receive

• Limited or no withdrawals allowed during the term

• Usually pay a higher AERs than instant access accounts

Frequency of deposits

Options: Regular savings accounts

Considerations:

• Require the saver to deposit the same amount of money each month

Operation

Options: Passbook or cash card in branch, cash card in an ATM, online, telephone, post

Considerations:

• Tend to offer higher AERs

• Convenience

• Access to a computer

• Speed or transactions, especially by post

Safety

Options: Covered by the FSCS or provided by NS&I

Considerations:

• FSCS covers UK providers authorised by the FCA

• Check that different providers are authorised separately so savings are covered

• NS&I products are backed by HM Treasury and 100% guaranteed whatever the amount saved

Provider

Options: Bank, building society, credit union, NS&I

Considerations:

• Convenience such as location or the saver already holds other products with the provider

• Preference - for example, the saver likes the customer service offered

Eligibility

Options:

• Age limits

• New or existing customers

Considerations:

• Some products are only available to savers in a specific age bracket or for existing customers of other products, for example people who hold current accounts with the provider