Most people keep at least some of their cash savings in a bank account. There are numerous different kinds of savings accounts, and many provide the flexibility to get your cash out easily whenever you need it.
These kinds of accounts can help you keep track and reach your saving goals, including saving up for a deposit on your dream home. With savings accounts, most people expect to see a gradual increase in the savings through accrued interest.
The level of risk involved with keeping cash savings in a bank account is fairly low. However, the money that sits in the account could lose value if the interest rate doesn’t keep up with inflation.
If your bank or building society were to go bust, you would be entitled to compensation for a maximum of £85,000 through the Financial Services Compensation Schemes. Because of this, it is generally recommended to not have more than that amount in a savings account within the same banking group.
Flexibility vs interest rates
Cash savings in a reliable bank account can provide financial security and flexibility to use the money now. To make the most out of this kind of investment, it’s important to find savings account offers with the highest interest rates available.
If you are okay with having the money inaccessible for a certain period of time or if you have a lump sum to save away, fixed rate bonds and notice savings accounts often offer better returns. These are better options when interest rates are falling as you will be guaranteed a return.
Historically low interest rates
With the Bank of England’s base interest rate set at an all-time low of 0.1%, interest rate savings accounts aren’t a lucrative investment like they have been in the past. Savings rates have been on the decline for some time now. The Bank of England is even considering a negative base rate. When interest rates increase, it could make cash savings in bank accounts more enticing.
If you are looking to keep your cash savings in a savings account, shop around. Banks, building societies and credit unions are constantly changing their rates and cash back benefits. The big banks in the UK are currently offering especially low interest rates. Some smaller banks and building societies are offering better rates to savers.
Many of us need to be able to access money easily day-to-day, so the majority of Britons have cash in savings accounts. However, less people will likely use these kinds of accounts as a form of investment for their cash and will look elsewhere to see returns on the money they’ve saved up.
It’s recommended to receive professional financial advice when considering any kind of investment to ensure you find the best investment option for you.