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Savings Jargon

When opening a savings account, think about....

What's the rate of Interest?

This is known as the AER (Annual Equivalence Rate). Check whether this interest is paid monthly, quarterly or yearly.

How much is the Interest?

Is the interest rate FIXED (stays the same) or VARIABLE (will alter)?

On-line savers and building societies sometimes offer the best deal. Some accounts offer a higher rate of interest as your savings increase.

Is the Company you are saving with, increasing the rate of interest above the Bank of England Base Rate? Some Companies do not do this.

How is the Interest Paid?

Is the interest paid SIMPLE (calculated on the amount you pay in) or COMPOUND (calculated not only on the amount you pay in but also on the interest they pay you).

How do you get your money out?

Is there any notice period that you have to give if you want to take out any money?

Are there any penalties if you want to take out your money?

What’s inflation doing?

Inflation is high when products cost more. This affects our savings because they are worth less due to items costing more. Therefore we need to ensure that the interest rate on our savings account is higher than the rate of inflation.

Will you pay tax on your Interest?

Banks automatically deduct 20% from a standard rate taxpayers interest on their savings account. If you are not earning enough to pay tax (student loans and grants are not taxable income), then you need to ensure that the Bank isn’t taxing you.

If you do earn enough to pay tax, have you got an ISA (Individual Savings Account)? You can put up to £3600 cash in an ISA per tax year (April to April) tax free, and another £3600 in shares

Do you know exactly what you're getting into?

Read the terms and conditions on the account. Are there any nasty clauses in the small print?

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