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Savings accounts

One of the most common ways to save is to invest in a deposit account. Different accounts offer different interest rates which will affect the return over time.

Budgeting for the year ahead


 

The first £1,000 of interest is tax free. If you are paying higher rate tax, you can only earn £500 interest tax free, while 45% taxpayers have no tax exempt savings allowance at all.

You should always check that you are covered by the FSCS guarantee which will protect your savings up to £85,000 in any one institution. For this reason, individuals with high amounts of savings may choose to save their money across a range of institutions.

If you are married, it can be sensible to put savings in the name of whoever is basic rate tax payer because they can earn more without paying tax.

Whilst keeping your money in cash is considered less risky than investing, there are also a range of risks with this, including but not limited to:

- Interest rate risk: Savings accounts are not intended for accumulating high returns on the money you put into them. Change in interest rates affect the relative attractiveness of different investments for example, rising rates present a risk to fixed rate products. 

- Inflation rate risk: Inflation rate risk is major consideration of any investment plan, that is, the risk that inflation will reduce the interest rate returns over time. The best long-term protection against inflation is provided via long-term investment in real assets.