Savings Accounts - the money forest

fred · 10-06-2009, 05:24 PM

Looking for the money tree? Despite what they say, it's out there alright. Having a high interest savings account earns you money on any spare cash you may have. Many students try and save up a bit of money for university by getting a part-time job. You may even be lucky enough to get a few financial donations from your family.

Even if you have minimal savings, you are likely to be taking on a student loan and/or an overdraft. Use a portion of this borrowed money and put it in a savings account. Whatever you do, do not stick it in your basic 0.1% interest current account! Otherwise you are potentially loosing the value of your money, with inflation at 2-3%. Earn on it instead!

In the matter of half and hour you can apply for an instant access savings account that will see you earn £5 a year for each £100 you deposit. As a student it is important to open an instant savings account so that if you need to withdraw the money, as you inevitably will, you can within a reasonable time period (days).

Tax Free ISAs

You may have heard of a type of savings account called an ISA, you may already have one. An ISA is a special kind of high interest savings account because you pay no tax on your interest earnings. Each year you can deposit up to around £3,000 tax free. They are no doubt a good choice, however you should bear in mind a few important things.

With an ISA, if you happen to deposit the full £3,000 or so at the start of the tax year, then withdraw £1,000 the next month, you are unable to top it up again until the following April. Students can also get a better deal than an ISA, due to the tax-free income allowance. If you earn under around £5,000 income over the year (most students do), it may well be better to opt for an even higher savings account as you will not be eligible to pay tax on your earnings anyway. This means you get paid gross interest rather than net interest, the same as an ISA. So really, as a student, see ISAs and high interest instant access savings accounts on the same level. One day you will become an earner, and then you should probably go for the tax-free benefit of an ISA before another savings account.

Sorry if that was all a bit drawn out, but hopefully it made some sense. The main crux of it is if you have a sum of money you're unlikely to need for over a month, just keep it in a high interest savings account and basically breed your money. The best rate savings accounts are usually online, making it easy to manage. Link it up with your current or debit account so you can transfer money between the two whenever you need to.

Best Savings Accounts for Students

Due to the highly volatile state of the financial market, banks are changing their interest rates almost monthly making it difficult to maintain an up-to-date top savings account list. I have therefore removed the previous list, but you can check out this webpage which is more current.

Remember, many of these rates are variable and will change over the course of time. Keep an eye on what you're getting and keep up with the latest market leaders. Sometimes the savings providers entice new customers with an attractive high rate of interest, only to drop it a few months down the line. So beware! Switch again if you have to.

Please do reply with your own saving experiences as a student, and post and questions you might have!