How To Find The Best Rates When Saving For A New Home
You may be saving for an extension on your house, you may want to renovate a part of your current home, or you may be saving up in order to build a brand new home. Whatever you are saving for, you will be dealing with large sums of money, which means choosing the best savings rates can make a significant difference to the amount of interest you receive.
Saving for building improvements or for a new house is a long-term process, so money will be sitting in your account for an extended period of time, and your money will regularly be added to. This means that differences in your savings' interest rates can mean variations of thousands of pounds in the rewards you receive from different bank accounts.
The type of account in which you should store your money depends on your personal circumstances. Whether you go for an easy-access savings scheme, a fixed rate ISA or a long-term bond depends on how much in savings you are starting off with, whether or not you may need to access it, how regularly you can deposit and how long you want to put your money away for, as well as how much you are saving.
The likelihood of you needing to access your savings regularly should be taken into consideration when choosing your account. You may be paying a monthly fee to a construction company, you may have to pay for consultants, or there may be an unforeseen incident that requires you to be able to access your money. If any of these are the case, you may have to forgo the best interest rates and opt for an easy access option.
If you do choose an easy access option, don't be fooled by the name. Some of the 'easy access' accounts with the highest savings interest rates claim to offer flexibility, but in fact only offer features such as unlimited deposits or a low minimum initial investment. You may still be charged for making withdrawals. Be careful to read the terms and conditions when signing up for an easy access option to make sure you do not miss out on the flexibility you need.
If you are in a more secure position and can commit to storing your money away for a while, or if you are saving for a home improvement that is some time away, you will want to consider a fixed rate bond. These involve depositing a sum of money for what is usually a year or more, with the money unavailable throughout the period of the bond. Fixed rate bonds often mean the best savings rates, but you need to be sure you will not need the money, since you are locking it away for a long time.
One thing to consider when choosing where to put your savings is an ISA. In these, your interest is not taxed up to a certain level. Interest on other savings schemes is taxed at 20 per cent or more, so in the case of the best ISAs, you can save a significant amount of money in interest tax payments.
In the UK, the ISA allowance is £10,680. £5,340 of this can be deposited in a cash ISA, in which interest payments are completely tax-free. The remainder of the allowance is for a stocks and shares ISA, which comes with different conditions, and only saves you money if you are a higher-rate taxpayer.
When choosing a cash ISA, a fixed-rate option will result in the highest interest rates, but should only be chosen if you don't need the flexibility of an easy access ISA. A fixed rate deal requires your money to be put away for a length of time, usually one to five years but possibly longer. As with fixed rate bonds, these types of ISA are a good option if you have the security to put money away for a long period.
As with other types of savings, the best ISAs in terms of interest rates often come with conditions attached, which may be unwelcome. Reading the fine print and understanding what you are signing up to is as important with ISAs as with any other account, and is especially crucial when dealing with large sums of money. Be careful not to deposit your money in an ISA simply because of the tax-free benefit - if you can make more money in interest by saving in another account despite the tax, as is often the case with some higher interest rate deals, it makes sense to do so.
The easy way to find the best savings rates is to search comparison websites, which will not only show the deals and cash ISAs with the best savings rates, but will also easily display information about minimum deposits, ease of access to your money and how long you need to put the money away for.
