Make saving your new year's resolution

Saving money is a popular new year's resolution for many people. However, if you're looking to put cash away over the next 12 months it is important to consider the best ways of doing so. Of course, it's a good idea to seek accounts that have the best savings rates, but there are other factors you need to bear in mind.

First of all, you should ask yourself the question 'what am I saving for?' Whether it's to fund a major purchase or you're looking to put some money away in case of a rainy day, your savings goals should influence the particular product you seek out.

If you are hoping to put cash away for the long term, it could be a good idea to take out a bond. These generally offer some of the most competitive interest rates of any savings account on the market; however, once you have made a deposit you won't be able to touch the money or put any more into it until the bond expires. As the terms on these deals typically last a few years, they're perhaps most suitable if you know you won't need to access the cash quickly.

For those keen to get their hands on their savings in case of an emergency - for example, an urgent bill that needs paying - instant-access accounts may be a better choice. As their name suggests, you'll be able to take out your cash whenever you like.

However, when searching for such products you will have to make the choice between taking out a fixed or variable-rate account.

While the former tends to offer slightly higher interest rates, these are locked in and will not move in line with any changes to the base rate by the Bank of England's Monetary Policy Committee. Although these give savers the certainty of knowing exactly how much interest they are able to earn on their deposits, should interest rates improve consumers may be stuck in an uncompetitive account.

On the other hand, variable-rate accounts tend to have lower starting headline rates, although the element of flexibility they contain may mean this will rise substantially depending on movements by the Bank of England.

For many people looking to save for the first time, individual savings accounts Isas are a great product. Unlike other savings vehicles, the interest attached to these accounts is tax-free so you may find they enable you to save more money, in comparison to a non-Isa that has the same headline rate.

Those taking out a cash Isa will be able to save up to £5,340 tax-free in the 2011-12 financial year, although people investing in a shares Isa or one that combines cash and shares can save up to £10,680. However, you should remember that if you withdraw any money from the account, you will not be able to replace what you have taken out.

Regardless of the type of savings account you're after, make sure you compare rates from a range of providers so that you know you are getting a competitive deal. You should also check the terms and conditions of an account carefully prior to taking it out. Many providers offer bonuses and special rates on their products, however, you may have to keep a minimum amount of cash in order to qualify for this.

If you're keen to start saving for 2012, it is a good idea to first establish how much disposable income you have. Write down your household's monthly income as well as all the things you spend money on. Remember to include everything, from your rent/mortgage commitments and gas and electricity bills to transport costs and nights out.

From here, you should have a firm idea of exactly how much cash you have going spare and areas where you can make cutbacks, whether it's swapping your utility provider, having fewer takeaways or cancelling magazine subscriptions.

However, if you have any debts - credit cards and personal loans, for example - it is important to concentrate on clearing these off first before you start to save. Doing so will leave you with more money in the long run to put into a saving account.

Bear the above points in mind and you should find that not only are you able to get a competitive saving account that is right for you, but you can also free up more money to put away for the future.

Savings interest rates

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2012-01-13 12:01:07 © Moneyextra.com