UK Banking - Investment Account
Investment Accounts
Investment account offer UK bank customers an alternative means of saving
for that something special.
They’re also a very useful, flexible means of saving that are an ideal savings vehicle for those who wish to save for either short-term goals (such as a car or wedding) or for long-term goals (such as retirement or around-the-world cruise).
Essentially the major difference between an investment account and a regular
savings account is that an investment account is a “fixed account”.
As such, if you want to have access to the immediately, you’ll need to be prepared to pay a penalty fee. The period of the fixed term varies from bank to bank, so make sure you check this aspect carefully when comparing different investment account products.
That said, the standard market period is normally 60 days notice.
As with all types of bank accounts, investment accounts can be opened as sole accounts (or individual accounts as they’re also known), joint accounts, or corporate/company accounts.
In certain circumstances trust accounts (such as for you children) can also be opened.
Note, however, that in the case of opening all of the account types aside from an individual account, the account opening procedure will be more stringent as the account will be considered as belonging to more than one person.
Benefits of An Investment Account
The primary benefit of an investment account is that it pays higher rates of return on your savings.Ordinarily these rates are also stepped so that the more you invest in the account the more interest you’ll earn (assuming, of course, that you cross the next threshold).
A secondary, and much used, benefit of investment accounts is that they allow savers to deposit money in an account with a valid reason not to touch the money until such time as they have reached the savings goal they intended.
Disadvantage Of An Investment Account
Although a useful means of saving for a specific goals, investment accounts are not a useful investment vehicle to use if what you are intending is to save for a rainy day. The reason why this is the case is because the account has a fixed notice period before you can make withdrawals.As such, it is extremely likely the rainy day will have come and gone before you can get access to the money – unless you’re willing to pay the hefty penalty fee for immediate access (and bear in mind that the penalty fee will likely be more than the interest accrued, so you’ll be a net negative position if you do request immediate access to your money!).
A further disadvantage with investment accounts is that are really only useful for those who wish to save according to a plan over a period of time. As such, they are not necessarily the best investment tool to use if you suddenly have a windfall lump-sum to investment.
Finally, a big disadvantage with investment accounts is that they are not tax-free if you are resident of the UK. In other words, you’ll be paid net, not gross, interest on the account.
5 Questions To Ask Yourself Before Opening An Investment Account
1: Do I have an intended purpose for opening the account?
2: Have I budgeted for this in my monthly ongoing budget?
(e.g. if you are planning to get married, have decided to budget 50 Pounds a month saving for this, then an investment account will fulfil the requirements of 1 and 2 above perfectly)
3: Is there any alternative means of savings plan that will provide me with a higher rate of return?
4: Are there any administrative and other fees I should be aware of?
5: Will I need access to the money at anytime prior to its intended use?