Easy access accounts

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It’s always a good idea to have some savings readily available in case of emergencies. Ideally, your ‘rainy day’ savings fund should amount to between three and six months’ income, but any cash cushion is a good thing.

To get immediate access to your cash you will need an easy access account. Easy access accounts, sometimes known as no-notice or instant access accounts, enable you to make withdrawals at any time without having to let the bank or building society know in advance. They can usually be opened with just £1.

Setting up a direct debit from your current account into an easy access account is a great way to start building up your savings nest egg, especially if you’ve never saved before. To work out how much you can afford to pay in, take a look through a few recent bank statements and calculate how much you can put by of what’s left after all your expenses have gone out.

If you don’t want to commit to paying in monthly, you don’t have to. You can simply contribute to your easy access account whenever you have money spare, making it the most flexible savings option out there.

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Selecting your account

Because you can get your hands on your money whenever you want, returns offered on easy access accounts are not the best on the market. Rates can still vary though, so make sure you shop around for the best deal.

Online-only accounts tend to pay more because the provider has lower overheads and can pass on the savings in the form of higher returns. But it’s still worth checking out accounts which can be operated by post, phone and – if you value face-to-face contact with your savings provider – in branches too. But if you do opt for a branch-based account, make sure that there is a branch local to you before signing up!

Easy access accounts almost always offer variable rates of interest which means the rate on your account can go up or down at any time. Remember that rates don’t only move when the Bank of England changes the base rate, so keep an eye on the interest you’re earning. If it no longer looks competitive though, it’s easy to move your savings to a better account.

When you’ll receive interest

Most easy access accounts pay interest annually, although some offer savers the option to receive interest monthly. This can be useful if you are looking to supplement your income.

Check the annual equivalent rate (AER) to see how much interest you’ll earn. This shows you what the rate of interest is, taking into the effects of compounding. Compounding happens when the interest you’ve earned on your savings itself earns interest.

Easy access accounts are straightforward in so far as you can get your hands on your money whenever you need to...

Since the introduction of the new Personal Savings Allowance (PSA) in April 2016, banks and building societies pay interest gross.  The PSA means that basic-rate taxpayers can earn £1,000 of savings interest without the taxman taking a slice, and higher rate taxpayers can earn £500. Additional rate taxpayers are not eligible for a PSA. If the interest you earn exceeds these limits, any tax you owe will usually be collected via the Pay As You Earn (PAYE) system or via your self-assessment tax return.

Check the small print

Easy access accounts are straightforward in so far as you can get your hands on your money whenever you need to, but there are still a few things to watch out for.

For example, while some accounts are marketed as easy access, they can limit the number of withdrawals you can make each year. If you exceed this number, then the rate of interest can plummet – so check for restrictions.

You might also be required to keep minimum balance in your account. Fall below this and your interest rate will drop – or your account could even be closed. There may also be a minimum or maximum amount you can withdraw at any one time.

Short-term bonuses are another thing to watch out for. While a rate may look tempting, closer inspection will reveal it includes an introductory bonus which disappears after, say a year or 18 months. Be prepared to move your money once the bonus disappears if you want to keep earning the best rates.

Also, if you are considering an account which includes a bonus in the rate, check to see whether it is variable or fixed. If it is fixed then you have peace of mind that the bonus can’t drop during the bonus period, but if it is variable, then there is a risk that the bonus could reduce over time.

Savers who prefer not to have to move their money frequently may prefer an easy access account which don’t include a bonus. However, it’s just as important to keep an eye on how much interest you’re earning, as returns could still fall.

Don’t forget current accounts

Finally, these days it’s worth looking at current accounts alongside easy access accounts as many actually pay higher rates on credit balances up to a certain limit. And, since September 2013 when the Current Account Switch Service was introduced, you can also now switch your current account with no hassle in seven working days.

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