If you have any spare money, even if it isn’t very much, think about opening a savings account. As well as getting you into the good habit of putting money aside rather than spending it if you don’t need to, it will make your money “grow”.
Choosing a savings account
Most banks and building societies offer special savings accounts for young people; go into your local branch or look them up online. If you want to compare all the different accounts available try these:
Money Advice Service (independent body set up under law to improve people’s money managment)
Which?(owned by the Consumers’ Association)
MoneySavingExpert (a journalistic website, part of MoneySupermarket, but editorially independent and well-respected)
How interest works
(NB interest is forbidden under Sharia Law. For more about Sharia compliant banking, see here.)
Banks and building societies pay you a certain amount of money, known as interest, in return for holding your money in a savings account. Interest is paid at regular times (normally monthly, six-monthly or yearly), calculated as a percentage of the money in the account at that time (the percentage is known as the interest rate).
Because the interest is added to the money already in your savings account, you will have a bigger total amount in your account next time the interest payment is calculated; so will receive a bigger amount of interest. This is known as compound interest and it is the main reason you should save for as long as possible – the amount of interest will get bigger each time.
Most savings accounts allow you to take money out when you want to. But they work better for you if you do not take money out too often; you will get much more interest. So you should try only to put in money that you don’t think that you will need for a while.
Different types of savings accounts
There are two main types of savings account:
- Easy and instant access accounts allow you to pay money into your account and to take it out whenever you want.
- Regular savings accounts require you to pay a certain amount into the account each month and may not allow instant access to your money. But they normally pay higher interest rates which means you end up with more money.
Think about which is better for you. Be realistic.
- If you like spending most of your pocket money/allowance, but occasionally get presents from family or friends, an easy access account is probably best for you.
- If you’re very disciplined, or regularly find that you have more money than you spend, you could consider a regular savings account.
Check on the internet to compare different interest rates and the rules for paying in or getting out your money.
How to open a savings account
Once you have decided which account will be best for you, it is quite easy to open and operate your account; the bank or building society will take you through the details. You will normally have a pass book or smart card and will receive a statement, generally once or twice a year. This will show what money you have put in or taken out, the interest which has been added, and your current balance – the total amount of money you have in the account after these changes. You will normally be able to operate your accounts online
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