width="138"><SPAN class="ARTICLEMENUHEAD">C O N T E N T<br><SPAN CLASS=ARTICLEMENULINE>_______________ </SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#1 target=_self>Looking for Instant Access </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#2 target=_self>How to Get a Better Rate </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#3 target=_self>Tax </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#4 target=_self>Monthly Income Accounts </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#5 target=_self>Regular Savings Accounts </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#6 target=_self>National Savings </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#7 target=_self>National Savings Certificates </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#8 target=_self>Index-Linked Certificates </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#9 target=_self>National Savings Income and Capital Bonds </A></SPAN><br><SPAN CLASS=ARTICLEMENUITEM><A HREF=#10 target=_self>Pensioners' Guaranteed Income Bonds </A></SPAN></SPAN><SPAN CLASS=ADVISORCELL><p><SPAN CLASS=FYI>Expert</SPAN><BR><SPAN CLASS=ADVISOR>A s s i s t a n t<BR> </SPAN><BR><SPAN CLASS=ADVISORTEXT>
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<!--article headline--> <td valign="top"><SPAN CLASS=ARTICLE><P><SPAN CLASS=ARTICLEHEAD>Bank, Building Society and National Savings Accounts</SPAN><br><SPAN CLASS=BYLINE>by <SPAN CLASS=HOTLINK><A HREF="money:navigate/guide/guide/010004.html">Caroline Whitehead</FONT></A></SPAN><SPAN CLASS=INLINEITALIC>,<BR>
specialist writer and adviser to leading UK financial institutions. </SPAN><BR></SPAN>
</P>
</FONT>Most people have money set aside as an emergency fund in case of urgent or unexpected expenditure, where they can get at it at short notice. Banks and building societies are an ideal place for this type of investment as it is usually easy to withdraw money quickly and it is a safe home for your capital. The danger is that your money might not be keeping pace with inflation if it is sitting on deposit and you should be careful not to have too much invested in this way. You should also consider the interest you are earning on that money, the restrictions, if any, on withdrawal and the tax implications of your investment. You should view your deposit account as an investment just like any other and it is important to consider alternative, and perhaps more competitive, vehicles for your longer-term savings.<BR>
Some banks and building societies offer much more competitive rates for larger sums of money, particularly where withdrawal is restricted. If you are risk-averse, these can present good opportunities for longer-term investment. But you might also consider some form of equity-based investment as a long-term hedge against inflation. (See <SPAN CLASS=ArtikelLink><A HREF="money:navigate/guide/guide/007002.html">Investment Strategies</FONT></A></SPAN>.)</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=1>Looking for Instant Access</a></SPAN><br>You should keep the bare minimum for instant access, as most banks and building societies pay insignificant interest on small sums that can be immediately withdrawn. To be fair to them, there are costs associated with administering these accounts, especially if they are used more like current accounts with a high level of transactions, and building societies in particular are withdrawing from this market. When you have placed your minimum amount where you can get at it easily, start looking around for some more attractive deals.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=2>How to Get a Better Rate</a></SPAN><br>The two factors that will result in a more attractive rate of interest are:</P>
<LI>the amount of the deposit, and</LI>
<LI VALUE=2>the period of notice required for withdrawal.</LI></P>
A number of building societies now offer postal accounts, where the rates are generally more competitive because they are cheaper to administer. Rates vary all the time, and it is not advisable to chop and change your account too often. But it is worth taking a look at the rates of banks and building societies to see what is on offer. For example, ú1,000 on instant access might only earn you 0.5 per cent per year, whereas ú1,000 on 90 days' notice could pay 4 or 5 per cent. A deposit of ú10,000 might earn 2.5 per cent and 6 per cent respectively.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=3>Tax</a></SPAN><br>Interest from bank and building society accounts is taxed as investment income and higher-rate tax payers will find themselves paying 40 per cent on income from these accounts. Most bank and building society accounts automatically deduct basic-rate tax and any other adjustments are made through your annual tax return. Higher-rate tax payers should consider tax-free investments, such as <SPAN CLASS=ArtikelLink><A HREF="money:navigate/guide/guide/007005.html">TESSAs</FONT></A></SPAN> and National Savings Certificates. Non-taxpayers can claim their interest gross, without any tax deducted, to avoid having to wait until the end of the tax year to claim it back. Married couples with one partner paying no tax should ensure that they split their investments, so that the non-taxpayer makes use of the tax-free personal allowance available each year. (See <SPAN CLASS=ArtikelLink><A HREF="money:navigate/guide/guide/001010.html">Tax and the Family</FONT></A></SPAN>.)</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=4>Monthly Income Accounts</a></SPAN><br>Most building societies offer a monthly income facility so that you can receive, often directly into your bank account, a monthly sum of money equivalent to one-twelfth of your annual interest rate. There are fixed and variable rate varieties depending on whether you want to be exposed to the rises and falls in interest rates in the market or not. They are useful for people who have been used to a regular monthly payment, perhaps a salary, and wish to continue with this arrangement. Because of the additional work involved in making monthly payments, some form of administration fee may be charged for this kind of account, or you may find that the administrative charges are reflected in a lower annual interest rate than that for growth accounts.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=5>Regular Savings Accounts</a></SPAN><br>There seem to be fewer of these around these days, particularly with so many good alternatives on the market, such as <SPAN CLASS=ArtikelLink><A HREF="money:navigate/guide/guide/007006.html">PEPs</FONT></A></SPAN> and <SPAN CLASS=ArtikelLink><A HREF="money:navigate/guide/guide/007008.html">Unit Trusts</FONT></A></SPAN>, which also offer a regular contribution facility. Of course, there is nothing to prevent you setting up a facility to pay money regularly into your bank or building society account. However, there are a few schemes still in existence that offer regular savers a preferential rate. You should watch the restrictions on withdrawal and whether there are penalties for missed payments.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN><p><SPAN CLASS=GLOSSARYHEAD><A HREF=money:navigate/guide/guide/222001/52>G L O S S A R Y</SPAN><BR><SPAN CLASS=SIDEBARLINE>______________</SPAN><BR><SPAN CLASS=GLOSSARYWORD>Gilts</SPAN></A></p></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=6>National Savings</a></SPAN><br>National Savings offer a number of deposit-based investments which rival bank and building society accounts. There is also a range of tax-free investments which can be particularly attractive for higher-rate taxpayers. The government decides which National Savings are tax-free; money is usually tied up for five years and limits are placed on the amount investors can save that way. The National Savings scheme, along with gilts and taxation, is used by the government to raise the money it needs to run the country. So when government borrowings are high, National Savings usually pay generous rates to attract extra funds. The tax-free accounts include National Savings Certificates, Children's Bonus Bonds and the first ú70 of annual interest from an Ordinary Account (ú140 for a joint account). Maximum investment limits for Children's Bonds and the Ordinary Account are currently ú1,000 and ú10,000 respectively.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN><p><SPAN CLASS=GLOSSARYHEAD><A HREF=money:navigate/guide/guide/222001/66>G L O S S A R Y</SPAN><BR><SPAN CLASS=SIDEBARLINE>______________</SPAN><BR><SPAN CLASS=GLOSSARYWORD>Index-linked</SPAN></A></p></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=7>National Savings Certificates</a></SPAN><br>You can invest up to ú10,000 in both fixed-rate and index-linked certificates, plus a further ú20,000 in each certificate if you are reinvesting certificates that have matured. Each National Savings Certificate pays a guaranteed rate of interest for five years. When the government wants to alter rates of interest, it makes a new issue available. If you buy a National Savings Certificate, you should be prepared to lock your money away for five years. After that time you can cash it in, invest in a new issue or keep it running in which case you will pay the General Extension Rate (3.51 per cent in April 1997). Each year after that you will be given the opportunity to cash in or transfer to a new issue. You should always watch out for the rate of interest on new issues compared to your General Extension Rate. On the anniversary of purchase, everything you earned in the previous year is added to your capital. Interest rates will be generally in line with banks and building societies, but the tax-free aspect enhances the return to tax payers. A tax-free interest of 5.35 per cent (currently paid by the 43rd issue) would be worth 7.7 per cent to basic-rate tax payers and 8.9 per cent to those paying 40 per cent tax.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=8>Index-Linked Certificates</a></SPAN><br>Index-linked savings certificates guarantee to increase the value of your investment in line with inflation. The 8th issue index-linked savings certificates will pay a bonus of 3 per cent above inflation for certificates that are held for five years. When inflation is 4 per cent, the return would therefore be 7 per cent tax-free.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=9>National Savings Income and Capital Bonds</a></SPAN><br>These bonds are guaranteed by the government. Income bonds pay a regular monthly gross interest which is subject to tax. The minimum investment is ú2,000. Three months' notice of repayment is required. You should invest for at least one year, otherwise your interest is halved. Capital Bonds give a rate of return which is capitalised on each anniversary. Tax will be due on this capitalised interest as if it had been received. These bonds should be held until maturity, i.e. after five years. If you pay little or no income tax and can tie up your money for five years, these can be very attractive. Children's Bonds are also available. These are offered in multiples of ú25 and interest and bonuses are exempt from income tax.</P>
</SPAN></td></tr><tr><td align=center valign=top><table border=0 cellpadding=0 cellspacing=0 width=138><tr><td align=right valign=top width=138><A HREF=#top TARGET=_self><SPAN CLASS=SIDEBARHEADS><SPAN CLASS=ARROW>ß<!--up arrow--></SPAN> B A C K </SPAN><BR><SPAN CLASS=SIDEBARLINE>_____________ </SPAN><BR><SPAN CLASS=SIDEBARLINK>to the top </A></SPAN></td></tr></table></td><td align=left valign=top><SPAN CLASS=ARTICLE><p><SPAN CLASS=ARTICLESUBHEADS><a name=10>Pensioners' Guaranteed Income Bonds</a><BR>
</SPAN>This is a competitive home for savings of older investors who are looking for a fixed monthly return for five years, regardless of changes in the level of interest rates. Interest is paid gross, although it is subject to income tax. Bonds can only be bought by people over 60 and the minimum limit is ú500. </P><P><SPAN CLASS=NEXTSTEPS>N E X T T O P I C</SPAN><SPAN CLASS=NEXTSTEPSLINK><BR><A HREF=money:navigate/guide/guide/007005>TESSAs</A></SPAN></p><p><SPAN CLASS=MSNtext>To access further financial articles, have a look at<br><Spann Class=MSNLink>MoneyManager on MSN!</SPAN><br><SPAN CLASS=MSNlogo><a href=http://MoneyManager.uk.msn.com><img src=msn_logo.gif border=0 align=top></a></SPAN><br> </SPAN></p><p><SPAN CLASS=CREDITS>Copyright 1997 Microsoft Corp.</SPAN></p></td>
