Things to consider if you want to save for a rainy day

It is difficult to ignore the fact that at the moment, the government is urging as many of us as possible to save what we can for the future. Whether it is to give ourselves a little extra comfort in retirement, saving up cash for a deposit on a new home, or to help with items such as tuition fees for a child heading to university, the onus is certainly for people to start saving.

Of course, if you are relatively new to this and have not opened a savings account before, then it can be difficult to ascertain the best type of account for your needs. It is tempting to think the deals that offer the best savings rates are likely to be the best, but that very much depends on your circumstances and how you want your savings to be invested and work for you over time.

Listed below are three popular savings accounts, together with the benefits that each has to offer to the saver.

These are arguably the most common and well understood forms of saving. You simply open an account with your chosen bank or building society and pay into it. You’ll always receive back all the money you have paid in, plus any interest at the advertised rates. There are key differences between deals; some ask for a minimum monthly payment, others a set amount to be invested upon opening, while others have criteria about how quickly you can access the money should you need it. It is worth weighing up all these factors, alongside the advertised interest rate, before deciding the best option.

Most banks and building societies offer a fixed rate isa (Individual Savings Account) as part of their product range. With an ISA, you can save up to £5,340 a year (for tax year 2011-12) tax free, if you are resident in the UK and aged 16 or over. Each ISA has its own rules regarding the interest applied to the account and how accessible the money is to the saver, and it is worth investigating this before deciding on the product for you.

If you choose to invest your cash in a stocks and shares ISA, you can save up to £10,680 (for tax year 2011-12) in this type of account. It is worth remembering though that this is an investment product rather than a savings product and as such, there is a greater risk of you not getting back what you expected from your investment. On the other hand, there is also the chance that you may earn considerably more from your choice of stocks and shares and additionally, the money you make from your investment is free from capital gains tax.

While this list is by no means exhaustive, it does provide the perfect starting point for anyone seeking to begin saving for the future.