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Good account for short term savings?

Saving | Savings Accounts Helpful? 4

Asked by TinyTears, submitted 24 July 2011.

Open Quote Do you have any thoughts on the Saga Telephone Saver I've just be told about?

I'll shortly be having some National Savings Certificates mature and am thinking of putting the money into this Saga account for future use to buy a car, new kitchen and bathroom and am told this would be a good place to hold it whilst deciding on best deals on all these items.
End Quote

Answered by Justin on 27 July 2011

The Saga Telephone Saver account is a straightforward instant access savings account provided by Birmingham Midshires. The interest rate is currently 2.75% (before tax), which includes a 1% bonus during the first year - such bonuses being usual for most 'best buy' accounts these days.

When you open the account it's linked to one of your existing accounts (e.g. current account) so when you request withdrawals (by telephone) the money is sent straight over (usually arriving within 3 days). There are no restrictions on withdrawals, so it sounds like it'll suit your needs.

My only suggestion is that there are other similar accounts on the market paying more interest and if you're a taxpayer who hasn't used their ISA allowance this year then a cash ISA would be advantageous as interest is tax-free.

For example, at the time of writing the Derbyshire Building Society NetSaver account pays 3.11% (including a 2.11% bonus until November 2012) and allows withdrawals to a linked account via the Internet.

And Santander pays 3.30% on its Flexible Cash ISA, including a 2.80% bonus for the first year. Instant access withdrawals are allowed by Internet, phone or branch.

The only downside with accounts such as these paying bonuses is that you can more or less guarantee the rate will become uncompetitive when the bonus ends. So just be prepared to shop around and move the money elsewhere in future if there's any money left in the account when the bonus expires.

As to how much difference the various rates above would make, here's a quick example showing the annual interest, after tax, per £10,000 of savings. I've assumed the rates don't change from current levels:

Accountnon-taxpayerbasic rate taxpayerhigher rate taxpayer
Saga £275£220£165
Derbyshire £311£249£187
Santander £330£330£330

You obviously have the option to roll-over the maturing Savings Certificates into another issue, but since you'll need to the leave the money untouched for at least a year to stand a chance of getting a return it sounds too inflexible for your needs.

Good luck bargain hunting on your car, kitchen and bathroom, there should be lots of good deals around in the current climate!

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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