EASTER (NEST) EGG: WHICH SAVINGS ACCOUNT IS BEST FOR YOU?

The Easter holidays are almost upon us, which means millions of people across the country are stocking up on tasty chocolate eggs to share with their family and friends.

While it’s certainly a time for sweet-toothed overindulgence, there’s no reason you can’t cultivate more virtuous habits elsewhere – especially when it comes to finances.

That’s why the experts at money.co.uk have put together a quick and easy guide with all the need-to-know information when it comes to savings accounts, including which one is best for you.

James Andrews, Senior Personal Finance Editor at money.co.uk, said: “Choosing the best savings account is about knowing yourself as well as the marketplace. Each option has different requirements and everyone’s goals are different – so you need one that suits you.

“If you’re just starting to save and are looking to get into the habit, then you should think about opening a regular savings account. You can usually get good interest rates with this type of account, and they’re easy to manage – making them the perfect place to start.

“Regular savings accounts require you to put a set amount in each month (between £25 and £3,000), often for a fixed period – for example a year. Make sure you understand what happens after that period is up, as well as what the restrictions are on withdrawals, before you sign up. But if you’re happy with the conditions, they pay higher interest than just about anything else.

“If you’re looking to save but also have direct access to your money, then an instant or easy access account is a good option. They are flexible, allowing you to pay in and withdraw money more or less whenever you like without it affecting the interest you earn. That makes them great options for impulse savers or as emergency funds.

“But instant and easy access accounts aren’t for everyone. They have lower interest rates than other savings accounts like fixed-rate bonds, while it can also take a few days to process withdrawals.

“If you’re happy to tie up your money for a set term, from around six months to five years, then a fixed-rate bond is a better option. The main benefit of this type of account is that they usually offer high-interest rates, meaning you can maximise your savings.

“Fixed-rate bonds don’t usually let you add to your funds after the initial deposit or for the first 30 days after that. It’s also important to remember that you won’t be able to access your saved money for a set time without paying a penalty. But if you have a lump sum you don’t plan on using for a while, they are among the best options.

“The Lifetime ISA (LISA) is a great option for savers looking to get on the property ladder. This type of account entitles you to a 25% bonus on savings of up to £4,000 a year, meaning you can gain £1,000 an extra on top of your savings and interest. Meanwhile, because it’s an ISA, the interest you earn on the money is tax-free.

“But there are conditions. While you can access the money whenever you like, to get the government 25% bonus, you have to be 60 or over or spending the money on your first property. Taking the cash in any other circumstance sees you actually lose 25% of the money.

“And that’s worse than it might sound – an example of how this works in practice is the easiest way to explain why. Say you save £80 in a year. The government bonus turns that into £100. But if you withdraw that, you lose 25% of the total – or £25 pounds. So, for your £80 of savings you only get £75 back – effectively losing £5.

“If you’re looking for a tax-efficient way to invest your savings, and have long-term savings goals, then an Investment ISA might be the way to go. This type of account allows you to earn a return by investing your money in a variety of shares, funds, investment trusts and bonds.

“As an ISA, money you make is free from income tax and capital gains tax, and the returns on stocks and shares are generally higher than on regular savings. But they also come with a risk you could get back less than you paid in if your investments perform poorly. The safest way to minimise this risk is to leave the money there longer – making it a less useful option for people saving for a short term goal.