Cash saving

Here we will consider what are the implications of investing in cash, and what you should consider when deciding where to invest.

Six things to consider when investing in cash

• All UK regulated current or savings accounts and cash ISAs in banks, building societies and credit unions are covered by the government-backed Financial Services Compensation Scheme (FSCS). So if the bank fails, you’d get back up to £50,000 per person per financial institution. So remember to check if the banks you invest with are linked together especially if you are investing more than £50,000. Remember Northern Rock, Bradford and Bingley.
• Remember to check your rates on a regular basis as loyalty doesn’t count when it comes to dealing with banks. Check what rates you are being paid on your savings and switch to a bank prepared to pay you more.
• All taxpayers are required to pay tax on interest earned on savings. This is deducted automatically for basic-rate taxpayers so don’t forget to fill in your Inland Revenue form R85
  
  Use this link to download R85 Form
  …and make sure you don’t pay too much tax.
• Remember savers can shelter £5,100 a year in a cash ISA ( Allowance for the 2010/11 tax year), or take advantage of various tax-free products from National Savings & Investments, such as index-linked savings certificates.
• With savings rates so low, many may be tempted to have a flutter on Ernie, which offers all 23m bondholders the chance of winning two £1m prizes each month, plus a million other smaller tax-free prizes. The odds of winning any prize are 36,000 to 1.
• All “rainy day” savings ( we recommend at least 3 x your monthly net income ) should be kept in an instant access account, online accounts generally offer better deals than branch-based or postal accounts.