Thousands of Northern Rock savers found themselves walking away from branches last week with bags full of cash – between them they are estimated to have withdrawn £2 billion from the bank. Now that the money is safe at home, many of them are probably scratching their heads trying to work out where to put it now. MoneyExpert takes a look at where you could put your hard earned cash…
Cash in a basket
If you have a significant amount of savings then you would be well advised to spread your money between different banks and financial service providers. Don’t put your entire life savings in the hands of one bank – look around for a range of deals.
Don’t put all your eggs in one basket because if the company is in trouble or just cuts its rates your risk is spread.
This way you’re exposing yourself to less risk should one of the companies perform badly.
If you have savings taken out of Northern Rock to reinvest then you should think about how quickly you need your money back.
Bonds and notice withdrawal accounts will only give you limited access to your cash and you will have to wait a certain period or follow certain procedures to get your hands on it. It can take as long as a year to get your cash back unless you are willing to pay a penalty fee.
This is compared to instant access savings accounts and most individual savings accounts (ISAs) which will allow you to take your money out whenever you like.
Both sorts of savings methods have their advantages – it depends on whether you can trust yourself not to touch your savings for every little purchase.
Instant access savings accounts – are just like a normal bank account except they are designed for savers so you can expect a better interest rate than you will get on most current accounts, and it can be as much as six per cent.
The fact that you have unlimited access to your money means that you may miss out on the very top rates of interest offered in others savings accounts.
Notice to withdraw savings accounts – these are similar, but you will have to let your bank know in advance that you wish to make a withdrawal. This notice is usually around 30 days but the notice on some accounts is as short as a week. These limits tend to discourage customers from withdrawing and as a result can offer slightly better rates of interest.
Regular deposit savings accounts – are designed for savers looking to put money away every month and therefore might not be ideal for customers looking to reinvest a sum of money. However these accounts pay out big rates of interest, in some cases as a high as 8%. With these accounts there will be a minimum amount of money you will have to pay in every month.
Bonds – are investments where you give a company a certain amount of money and they then agree to pay you back your initial investment plus an agreed rate of interest, normally around 6%, at the end of the period.
Individual savings accounts – are a tax free account available to savers. They are limited however to savings of £3,000 in a mini-cash ISA in a tax year. Like bonds, they are currently paying out around 6% in interest.
Compare the best savings accounts
Contrary to some of the media reports you may have seen the British financial system is still stable. Your money should be safe with any financial service provider regulated by the Financial Services Authority and the Treasury has now guaranteed Northern Rock savings. This is not to say that certain products or companies may not perform particularly well in the future and that should they go under that you will get all your money back.
Bonds for example will guarantee to return the initial sum you invest and while most will pay out an additional rate of interest on the money, this is not always guaranteed so it’s worth checking the conditions.
A share ISA is another example of a savings account which carries risks; because it based on the stock markets or a company of fund’s performance your initial investment is not guaranteed. These sorts of accounts should be used as a long term investment.
Back in the bank
There’s little point having your savings sitting around the house. You might feel better now your cash is out of the bank, but there’s always the possibility of burglary and while it’s there you aren’t making any money on it.
There are various options available to savers with money to play with, but whatever you chose to do with it be sure to consider when you need the money and if there is a lot of it spread it between as many companies as possible.
Compare the best savings accounts