In a nutshell: There are no get rich quick schemes when it comes to saving. You are protecting, slowly growing and investing your money. Don’t forget that.
So, a Savings Account is the perfect way for you to keep some of your money separate & safe!
Putting your money into a Savings Account is a great way to watch your money grow, as overtime you will earn interest on the money you keep in your account – more money just because!
People usually use a Savings Account to put some money away for big things, like:
- Buying a house
- Getting married
- Buying a car
- Going on an amazing holiday
- Paying for a course
- Starting a new business
The aim is to decide what you want to save for & focus on making it happen. It’s a simple as that.
There are a few different types of Savings Accounts, so once you know what you are saving for, you can choose the right one for you.
How Do Savings Accounts Work?
Savings Accounts are pretty easy to use & understand. Every Savings Account has an Interest Rate, which is the amount of money you will make on your savings, as time flies.
Everyone has a Personal Savings Allowance, so you can always earn interest on a specific amount of your savings, before you have to pay any tax.
Now that sounds like free money to me!
The amount of Personal Savings Allowance you have available is based on your income tax band.
So if you’re a normal person, a.k.a 20% Basic rate taxpayer, you can earn up to £1,000 worth of interest, before you start paying any tax on your savings.
If you’re a 40% higher rate taxpayer a.ka Baller… you can earn up to £500 worth of interest before paying tax. The rich still, definitely get richer!
If you’re earning Jay-Z money and are a 45% Additional rate taxpayer…you get no allowance. Simple as that. You have way too much money already, ha ha!
Now, when you’re looking at the Interest Rate on a Savings Account you’ve got to be aware that the Interest Rate can be shown in two ways, so don’t let anyone trick you:
- Gross Interest – This is the interest rate before tax is deducted
- Net Interest – This is the interest rate after tax is deducted, using the 20% basic tax rate.
The funny thing is, some types of Savings Accounts are completely tax free! You’ve probably heard of them, their called Individual Savings Accounts, known by everyone who doesn’t work in a bank, as…. ISAs.