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IASA - A piggy bank with interest
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Instant Access Savings Accounts - An Introduction
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Hazel Cottrell
hazel.cottrell@consumerchoices.co.uk
Instant Access Savings Accounts can be a great way to get the most from your savings without losing fast access to them.
What is an Instant Access Savings Account?
An Instant Access Savings Account (IASA) is exactly what it says on the tin – a savings account which pays you interest on your savings whilst giving you instant access to your money, allowing you to make immediate withdrawals whenever you need the cash.
Perfect for keeping a reserve of emergency cash in, you can set up a standing order from your current account and use your IASA to save for that rainy day. Available from a wide selection of banks and building societies, it’s easy to open an IASA and transfer your funds to get the best rate possible.
What are the benefits?
- IASAs generally offer better interest rates than current accounts, enabling your hard-earned cash to grow faster.
- If you have some spare cash in your current account that you rarely touch, but want to be able to access it immediately if you need it, opening an IASA could be a profitable move. For example, leaving £1000 in your current account, even if you have a good interest rate of 3%, would only earn you £30 a year (minus tax). If you moved this £1000 into an IASA you could make more than double this - with an interest rate of 6.5% you would make £65 a year (minus tax).
- Because IASAs offer instant access, there is no need to go through the processes normally associated with withdrawing cash from regular savings accounts – no notice period is required and you are not (usually) penalised for withdrawals.
What are the disadvantages?
- IASAs are not as practical as current accounts on a day-to-day basis. They cannot usually be used for direct debits or paying bills and most do not offer cheque books or cash cards. To use your IASA, you will usually transfer funds to and from it through your current account.
- Although you have instant access to your money, it may still take up to three working days to transfer money between accounts if they are held with different banks.
- You are taxed on the interest than you earn from IASAs, so if you have a fair bit of cash that you won’t need immediate access to, you would be much better putting it away in a tax-free Cash ISA.
What should I be looking out for?
Know how your interest is earned and read the small print. Barclays (www.barclays.co.uk) Nest Egg Savings Account won’t allow you to earn interest in any month that your balance drops below £5000, whilst the Post Office (www.postoffice.co.uk) Instant Saver Account only allows you to make six free withdrawals per year.
Check the ways that you can manage your account. These may include by branch, phone, post and online but many products are restricted to a few of these. If you are comfortable handling your money on the internet, then you can benefit from using one of the many online accounts which often offer the highest interest rates. If you prefer human contact however, be sure to check the number of local branches.
Find out how long your interest lasts, as many banks offer introductory rates which drop significantly after six months or a year. If this is the case you can still enjoy the bonus rate while it lasts, just ensure that you set yourself a reminder of when the bonus period ends and when it does move your cash to a new account to get the best available rate.
However, if you're not particularly disciplined with your financial affairs and can’t cope with the thought of switching banks so frequently, you might want to look at something like the Capital One (www.capitalonesavings.co.uk) Base Beater Account which guarantees to pay interest above the Bank of England Base Rate until July 2010.
Recommendations
Alliance and Leicester (www.alliance-leicester.co.uk) offers a high interest online IASA, at 6.50% AER. If you’re just starting your saving, you will want to take a look at the online offerings from Capital One (www.capitalonesavings.co.uk), Sainsbury’s Bank (www.sainsburysbank.co.uk) and HSBC (www.hsbc.co.uk) who each let you open an IASA with a deposit of just £1 or less.
Compare the best Instant Access Savings Accounts with our Best Buy Table
Or, work out how much interest you can earn with our Savings Calculator.
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