A brief introduction to savings account and their types

By FunFacter

Depending on your need and life style, you have to choose a proper savings account. You need to consider the facts like income tax, instant money, rate of interest, easy access before you select your savings account. Savings account can be classified into five types. Having a detailed knowledge about these types will help you in the selection of savings account.

Easy access account

The main advantage of this account is liquidity. You can get your money instantly without giving any prior notice to the bank. There will not be any financial penalty for withdrawing your money all of a sudden. In addition, you will not lose your interest. Getting our money by a short notice is a great advantage for business people. Business people always look for liquidity. Because of this flexibility rate of interest offered in these easy access accounts will be a bit lower than the other savings accounts. If you are interested in an account, which provides money, immediately whenever you need it then this is a best choice for you but the catch is low interest rates. You can access your account by phone or by internet. Money will reach its destination within seconds. However, transfer via cheque will take few days. Despite the low interest, it is better to check the interest credited every three months.

Notice accounts

To withdraw money from the bank you should have given a prior notice. Otherwise, there will be a penalty for it. Most people prefer to get their money instantly so these notice accounts are dwindling in number. Even though they offer high rate of interest it is not attracting many people nowadays.

Term accounts

These accounts provide safety, high and competitive interest rates with tenure of one to five years. Mostly the interest rate is fixed for the whole period of the deposit. Initial deposit cannot be increased after the one time deposit. There will be a penalty if you take out your money before the maturing date. Liquidity is a big problem in these accounts.

Regular savings accounts

RSA allows you to deposit a particular amount every month for a saving purpose. Numbers of payments are fixed by the bank and if you could not make as many payments then there will be a loss in the interest. Sometimes even the account will be closed as a penalty. Some accounts restrict your monthly payments and some may restrict the number of times you withdraw money. Immediate access to our money is practically not possible.

ISAs

There are two types of individual savings account. One is equity ISA and the other one is cash ISA. Since these accounts provide high interest rate along with a better market returns they provide a better option for a risk tolerant depositor. You will be allowed to deposit only once in a financial year regardless of your withdrawals. The returns of these accounts are tax-free but there will be a ceiling for the maximum deposit. Amount deposited in equity ISA saves your tax too.