SAVINGS ACCOUNT: As a rule, savings and deposit bank accounts are for lump sum or regular input savers.
The essence of these facilities is saving for the future, or to prepare for some unforeseen event.
You do not usually receive a cheque book or cash card with a regular deposit/savings account. But, there can be a crossover between some other types.
Some bank current accounts offer incentives. You can get increased interest rates on your funds if you keep a good balance.
Whichever one you choose – or get sold – your excess money is on deposit at the bank. There is a return for this ‘commitment’ to savings. The bank will offer you an enhanced rate of interest than is the case with any regular current account.
Interest paid, is variable between the competing banks. Together with that, interest gets calculated in different ways. It can fluctuate depending upon your use of the banking system in the United Kingdom.
Bank Savings Accounts
There is an easy way to define a savings account. It is one where you can either put a lump sum of money away, save regular, or deposit as and when you have spare funds.
There are regular savings accounts at banks or a building society. Often, they attract better rates of interest than normal cheque-based facilities.
Interest is usually calculated on a monthly basis. It gets added by the bank, either monthly, quarterly, sometimes annually. The interest rate generally fluctuates according to the general bank rate.
Normal competitive forces within the market also influence results. It is possible to get a fixed rate of interest with some of the bigger commercial establishments.
Most savings accounts provide the option for you to withdraw funds at short notice. But, this can vary according to the one you have. It is also possible, with online banking in particular, to ‘instantly’ transfer money out of your savings fund – if needed.
Some savings accounts pay a higher rate of interest than others. For instance, you may choose to deposit a certain sum each month. That gives you an enhanced rate of interest.
The interest rate may change in any given month when you make a withdrawal of your holdings.
They are not fixed term portfolios. It may be possible to withdraw, transfer, or close the account at any time. It depends on the terms and conditions for each particular account. There might also be additional penalties written into the terms that you agree to.
Standard savings accounts can link to various investments, such as ISAs for instance. Interest gets paid either net or gross of Income Tax, depending on your own circumstances.
UK Bank Deposit Accounts
A bank deposit account is where you either deposit a fixed sum for a fixed term, or top up that sum as and when it is convenient.
The fixed term option is the norm and the length of the term varies. It is often for one year or more. The length of the term decides the rate of interest you receive. A longer term commitment attracts an enhanced rate of interest. The interest rate can be variable or fixed. It is important to ascertain this before entering into an agreement.
Your deposited money gets ‘locked away’ for the agreed term, with no access to it for emergency funds. So, it should only be a home for investment money after you have taken care of your day to day needs and emergency requirements.
Note: Some deposit accounts allow for early closure or withdrawal – with an extra cost passed over to you.