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With the turn of the year we start to look at ourselves and our lives. While the end of last year was all about giving to others and enjoying ourselves, now January has rolled around it’s time for a bit of self improvement.
Whether you decide to start a new gym membership, look to change career or tick some places of the bucket list, the resolution you should ensure you stick to is that of getting your finances in order. From cash ISAs to a fixed rate bond; here’s where you should start.
Get yourself on track
The first thing you need to do is get your finances back on track. If you’ve overextended yourself at Christmas and have accrued some debt on your credit card, it’s time to get it paid off; and we’re talking about the actual debt, not just the interest. Having a savings account is one thing, but if you’re still paying off debt this can become counterproductive as any interest you earn on your savings will always have to compete with that which you’re paying on your debt.
Choose the right savings vehicle
The amount of money you have and the access you need to it will often dictate which savings account you opt for.
This is always a good starting point as any interest you earn on your savings will be tax free. For basic rate payers any interest earned through a standard savings account will be taxed at 20%. With an ISA this is removed.
For the current tax year (2012/13) you can pay a total of £5,640 into a cash ISA tax free. This allowance will finish come the start of the next tax year on the 5th April 2013 – next year’s allowance has yet to have been announced. If you have any funds to transfer into savings, an ISA should be your first port of call. Rather than leaving funds in your savings account where you’ll pay tax on them, move them into an ISA where you won’t.
Fixed Rate Savings
A fixed rate saving account (or fixed rate bond) is perfect if you can afford to lock away your savings for a defined period of time. For example, if you have a lump sum which you don’t need to dip into for one or two years you can earn a high rate of interest with a fixed rate savings account. However, if you do need to access your funds you may be charged rate penalties.
This is ideal to use alongside your ISA if you have a little extra funds you want to put away but then dip into as and when you need it. Removing savings from your ISA will cause you to lose out on the tax benefits, so an easy access is a good solution for those extra savings for a rainy day.