By Will Davies
A cash cushion is always a good idea. I like the idea of having part of my savings readily available in case of emergencies. An idea instilled in me by my parents from an early age and probably why I refer to it as the ‘Rainy Day’ savings fund.
My standard rule is to maintain an account with enough funds to cover an emergency (those rainy days also seem to bring with them car troubles or a leaking washing machine), should I need it. But whilst it remains untouched I also want my savings pot to earn some interest.
There is of course a certain type of savings product that can help meet this requirement. These are called, rather imaginatively, easy access accounts. Sometimes known as no-notice or instant access accounts, the key feature of this type of account is their flexibility. They will enable you to make withdrawals at any time without having to let your provider know in advance. Deposits can be made by cash (usually only available in a branch), cheque or bank transfer (BACS payment).
Setting up a direct debit from your current account into an easy access account is a great way to start getting into the habit of building up your savings, especially if you’re new to saving.
There are various different ways in how you can manage and operate your easy access account. Online-only accounts tend to pay a higher interest but it’s still worth considering accounts which can be operated by post, phone and – if you value face-to-face contact with your savings provider – in branches too, though it always pays to have a branch close to you. There are easy access accounts that will combine all these types of access giving you increased flexibility in how you manage your account.
Many easy access accounts pay interest annually, although some offer savers the option to receive interest monthly which can be useful if you’re looking to supplement your income. Check the annual equivalent rate (AER) to see how much interest you’ll earn. This shows you what the rate of interest is, taking into the effects of compounding. Compounding happens when the interest you’ve earned on your savings itself earns interest.
Easy access accounts are straightforward in so far as you can get your hands on your money whenever you need to, but, as always, look closely at the small print. Make sure you check if there is a limit on the number of withdrawals you can make each year and what the minimum balance in your account. Fall below this and your interest rate will drop – or your account could even be closed. There may also be a minimum or maximum amount you can withdraw at any one time.