The days of the 100% mortgage are well and truly behind us and these days you will probably need at least a 10% deposit to even be considered for a mortgage.
And given that the average UK house price currently stands at £228,000 according to figures from the Office of National Statistics, this means that you will probably need upwards of £20,000 squirreled away just to get a foot on the property ladder.
Even when the anomalous London and the South East England house prices are taken out of the equation, the average UK house price is still £183,000 which means that you will still need around £20,000 to put down as a deposit on a new house.
So what’s the best way to save and, hopefully, get to this magic number as quickly as possible? Let’s take a look…
Make your money work
It’s important to pick the right savings product to make sure that your money is working as hard as possible for you, but this doesn’t necessarily mean lumping all of your money into the account that offers the highest rate of interest. You can compare products at Moneysupermarket.com.
When choosing a savings account, you should consider your current circumstances as well the amount you have to save or the interest you can accrue. For example, you may need to get your hands on your money at some stage and so tying up your savings in a fixed rate bond could be counterproductive due to the associated withdrawal penalties; an easy access account would be more suitable.
On the other hand, if you can afford to tie your money up for any length of time then it would probably be unwise to put all of your money into an easy access account as you will not be earning as much interest on this account as you could be with something like a fixed rate bond.
Whatever your circumstances though, it may be a good idea to split your savings across a number of accounts so as not to ‘put all of your eggs in one basket’, as it were.
So let’s take a look at some of the more popular savings accounts currently on the market…
An individual savings account (ISA) is a tax-free savings vehicle that comes in two forms, a stocks and shares ISA and a cash ISA.
Both come with a limit on the amount you can save which currently stands at £11,280 for anyone investing before April 5, 2013. This entire amount can be put into a stocks and shares ISA or can be split between that and a cash ISA, which comes with an annual limit of £5,640.
ISAs generally come with a competitive rate of interest and, although withdrawals are often allowed, you will lose any tax benefits on any money you take out and will no longer be able to invest the full allowance during that tax year.
Easy access savings accounts
Easy access accounts enable you to get your hands on your money whenever you need it without having to pay a penalty fee.
However, the rates on easy access accounts are generally not as high as on other types of account where savers are rewarded with better interest rates for keeping their money ‘locked-in’ for a period of time. Also, unlike an ISA, any interest is subject to taxation.
Fixed rate savings accounts
Fixed rate savings accounts or bonds often offer higher levels of interest but do not allow you access to your money for a set period of time. Or, those that do will charge a penalty fee for doing so.
The main feature of a fixed rate bond is that it this will return a guaranteed amount of interest for a set length of time. Fixed rate cash ISAs are also available, which offer the same benefits but with the added bonus of any interest made being yours to keep, tax free.
On the downside, if you tie your money up for any length of time is you could lose out if interest rates start to rise.