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Saving with a goal in mind: Which saving scheme is best for you?

There are many reasons why people want to put aside a lump sum of money each month. For some, it is a habit that has been passed down from their parents; the enviable genetic trait of storing some money away for a 'rainy day' is as admirable as it is useful when that rain does eventually fall. For others though, there is a specific reason why they choose to save - these, how long they intend to save for and how much access they require to their savings, means customers need to sort through myriad savings accounts available to find their perfect solution.

Nowadays, it is no longer the case of finding the best savings accounts rates possible and selecting the option that offers the best rate; there are a wide variety of other variables to consider. These include whether the rate is introductory, whether you will be charged for withdrawing money from the account (or even have access to it all during the introductory period) and whether you will be liable to pay tax on your savings and investments or not. Listed below are three of the most popular reasons for saving, together with an idea of what type of deal would be best suited to those circumstances.

  1. Saving for a child

    2. If you are considering saving a set amount of money each month for a child, there are a number of options available. A cash ISA is a great way to save up to 5,340 a year tax-free while still allowing you relatively easy access to the cash should you need it. If you are not going to require access to the money, then a fixed rate deal is an alternative as they tend to offer slightly better rates of interest, though less immediate access to your funds. In addition, you can consider a traditional savings account, which can be opened for as little as 1. These offer you more flexibility over when and how much you choose to pay in.

    A good piece of advice is if you are saving for your child at a young age and the amount increases considerably as the child gets older, it is worth considering switching your investment into a higher interest deal, as this can make a significant difference over the length of time you save for the child.

  2. Saving for a mortgage deposit

    3. The cost of houses are not cheap and the fact is that many first time buyers will be forced to save money simply to afford the deposit to get a mortgage on their chosen home. Once again, ISAs, in particular fixed rate deals, are good ways to save up to 5,340 a year; however, if you are seeking to save more than a stocks and shares ISA may be a better option. This allows investment up to 10,680 each financial year (as of 2011-12), and you can then opt to invest your cash in a number of different stocks and shares, in the hope they will produce a return on your investment. Obviously, this is a risk as the return may not be as much as hoped, but you can lessen this risk by splitting your 10,680 investment in half between a traditional and a stocks and shares ISA.

  3. Seeking to save a lump sum

    4. Many people are often left a lump sum of cash in the last will and testament of a friend or relative. If they are not used to saving, they may well be unaware of the best way to save or invest that cash as a lump sum. In such cases, one of the best ways to invest this money is in the form of fixed rate savings bonds. There are certain rules about how much you can invest as a minimum or maximum amount, and also regulations about how you can access your money - but these bonds offer a good way to accumulate a decent rate of interest.

Alternatively, you can opt for a tracker bond, which tracks at a set level above the base rate of interest. The potential here is that if interest rates rise, you can receive more money than on a fixed rate bond; however, if it falls you could receive less.