What are your options for saving money?

I’ve Come Into Some Money: What Are My Savings Options?

If you find yourself with an unexpected windfall it can be a bit of a minefield to navigate the different options for saving and investing and work out which one is right for you. In the guide, we’ll explain the difference between saving and investing, and give you an overview of the different vehicles for saving, should you choose to go that way.

Saving Vs Investing

The difference between these two scenarios is quite simple: saving means your money is locked away and guaranteed to be returned to you with interest, while investing means you risk losing some of your money for the chance you could see better growth.

Which of the two options is right for you really depends on your attitude to risk. If you like the idea that you could get a potentially much bigger return and accept that you could just as easily lose money as gain it, then investing is worth considering. However, if you can’t or won’t risk losing some of your money, you would be better advised to opt for a savings plan instead.

Each of the following savings options has different restrictions and features in terms of the maximum you can pay in, the interest paid and whether you have access to your money. If you have come into a lot of money you would be well advised to work your way through these different types of account in the order we have listed them, getting the most from the one that gives the best return before moving onto the next best option. Martin Lewis calls this the ‘savings fountain’.

Lifetime ISAs

If you’re a first-time homebuyer aged between 18 and 39, you are eligible to open a Lifetime ISA (LISA). You can save up to £4,000 per tax year into it and the government will add a 25% bonus on top. Once you have held the LISA for 12 months, you are able to use the money as a deposit on a residential property.

Current Accounts

Some bank accounts’ in-credit interest rates are actually higher than easy-access savings accounts and ISAs, and all interest is now paid to you without tax deducted. So, if you don’t qualify for a LISA your next best bet would be to find the bank offering the best interest rate on a positive balance and move as much of your savings as you can to that account. The upper limit is usually between £2000 and £5000. Once that money is in place, you can start to drip feed it into Regular Savings Accounts, which pay high interest but limit how much you can pay in each month.

Regular Savings Accounts

This is a type of account designed to receive monthly payments and usually pays high interest (of course, using comparison sites will help you identify the ones paying the most), but you’ll only be able to pay in a relatively small amount of money – usually between £200 and £500 per month. So, once your money is in the high-paying current account, set up standing orders to pay the maximum monthly amount from there into a Regular Savings Account.

Fixed-Rate Cash ISAs

If you’ve maximised your regular-savings account/s, the next best move would be to shift any money you don’t need access to into a Fixed-Rate Cash ISA. The interest on this type of account isn’t taxed, and anyone over 16 can pay in up to £20,000 each tax year.

You can access money that’s saved in a cash ISA, but be aware that the interest you receive will be reduced if you do so.

Easy-Access Cash ISAs

If you don’t want to take penalties for accessing your money then an easy-access cash ISA could be better for you than a Fixed-Rate Cash ISA. With this type of account, there are no restrictions on when and how much money you can withdraw.

Fixed-Rate Savings

If you have explored the above options and still have remaining money to put away, you’ll get the best return on it if you’re able to put it in a Fixed-Rate Savings account. You’ll be locked into a deal for a specific term – usually one, two, three or five years. You won’t have access to your money during the term, so be sure you can live without it.

Easy-Access Savings

Last but not least, if you have worked your way through all the options to get the biggest return on your money, the best thing to do with any remaining money is to open an Easy-Access Savings account. This will pay you a variable rate of interest, but you can withdraw the cash at any time so you’re free to switch to another option if there is a better deal available.