Now more than ever, households are tightening their belts and learning to love savings again. After a long period of high consumer debt and loans and low personal savings amounts, the trend has rapidly started to change in the wake of the credit crunch and economic downturn.

The difficulty currently is, of course, finding a savings account that offers decent returns, ideally which are more than inflation. Failing to gain interest levels that at least match the cost of living, means that the real value of your money will slowly erode over time.

In the current tight financial market, where many are burdened with existing loans, there are few easy access accounts that offer savings rates above inflation. However longer-term accounts, bonds and savings trusts may offer more attractive and guaranteed returns.

Additionally, for consumers that already have loans, it may be better to focus on repaying these before attempting to save (with the exception of emergency funds). Loans will nearly always be costed at higher interest rates than savings accounts and should be tackled first.

As a general rule, it is wise to seek financial advice when making a personal savings plan. For example, you may be happy for a low-interest easy access web-based account to save for a holiday, but prefer a tax-efficient, longer-term bond to pay for your children’s college education.

Stock-market linked savings can offer attractive potential returns, but these are not guaranteed. Bonds and fixed savings rates are less attractive interest rate-wise, but offer guaranteed returns.

A financial advisor will look at your savings objectives, lifestyle, savings patterns and attitude to risk and advise accordingly. Usually the advice will be to follow a structured savings plan and spread across different savings vehicles with different levels of risk.

Basic ‘emergency’ savings are best kept in an easy to access account. Longer term investment savings may benefit from stock or index linked savings accounts to earn better rates of return in the longer term. Tax efficient savings accounts are the ideal, but will have capped limits and conditions.

For any savings account, check the basics first and read the small print – often a small missed term or condition can otherwise trip you up later on.

For example, be very clear if you can add to the savings account and how many times / how much you can withdraw without the savings interest rate being affected. Some tiered rate accounts offer the best interest rates when only one withdrawal is made a year. Make several and you will lose that rate.

Other savings accounts offer better interest rates to loyal customers who hold additional finance products with that banking institution. A common example is a better priced savings account for a customer already holding a cheque or balance account, or one of the institution’s loans.

Avoid being swayed by promotional or joining offers when looking at savings accounts. Of course the same logic applies to bank accounts or loans, but essentially the promotion is generally worth little when the underlying merits of the offer is analysed.

Better instead to look for good fundamentals. These will differ for different circumstances, but they are essentially a good interest rate, few or no withdrawal penalties, easy access (ideally online access for those who have regular computer access) and good customer service.

Savings accounts can be reviewed and searched for online, in the same way that other common financial products such as credit cards and loans can be.

Finally, once your savings account is set up, use it! Set up an automatic direct debit from your main account when you get paid each month, before you spend it and undermine your good intentions.

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This entry was posted on Monday, June 20th, 2011 at 8:09 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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