Savings Products

This topic focuses on saving for the immediate and short term, This a time frame of a few days to two or three years. People save so that they have funds to pay for goods and services in the future.

Savings are, therefore 'delayed spending'.

The future payments may be for: needs, wants or aspirations.

Putting some money away regularly is the best way of saving for expensive things e.g wedding, car etc. It can also be a good way of making sure you have money to for emergencies e.g household replacement. 

You can use a credit card or take out a loan to pay for things like these, but this will cost you money and could lead to debt problems if you don't manage the repayments properly.

Common reasons why people might want to save money:

• Rainy-day funds, save money for an urgent repair e.g boiler replacement or an essential household item replacement e.g washing machine or cooker.
• Funds for treats, save money for treats e.g holiday, expensive piece of furniture or Christmas.
• Financial protection, have money available in case you run into financial difficulties because you lose your job, become ill or disabled or have an accident 
• Future spending, save money for something specific in the future e.g wedding, new car or retirement (through pensions)

Choosing a savings product 

Things to consider;

Return on savings

'Great interest rates on loans' = borrowers will have to pay a high amount back 

'Great interest rates on savings' = savers receive a high amount of money on their savings because they'd save for high interest.

Interest rates: The amount, expressed as percentage that a financial services provider charges a borrower when it lends money or pays to a saver.

AER: Annual Equivalent Rate is the interest that will be earned on the money in one year and takes into account how often the provider pays the interest e.g monthly, annually etc, the effect of compounding the interest and any fees and charges.

The return on savings is the interest that the provider pays the account holder and is expressed as an annual equivalent rate (AER), such as 2.2% AER.

All providers must use the same formula to calculate the AER they quote in advertising so that people can compare the return on different savings products.

This formula is set out in the Code of Conduct for the Advertising of Interest Bearing Accounts published jointly by the British Bankers’ Association and the Building Societies Association. 

When comparing the return on savings it is important that people compare like with like, for example, AERs or gross figures (before income tax).

Some provider adverts show a ‘headline’ interest…