Are the best interest rates for deposits in the UK really what they seem?

Saving money for a rainy day used to be something every one did and then Northern Rock and Bradford & Bingley among others went down, money got tight and savings started to dry up. When you put your money away you’ll be looking for the best interest rates for deposits in the UK, but should you be worried about your money disappearing into a black hole if your bank or building society collapses?
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Financial Services Compensation Scheme (FSCS)

Thankfully the investors who put their money into places like Northern Rock, Bradford & Bingley, Icesave and Kaupthing were protected by the Financial Services Compensation Scheme. The FSCS scheme guarantees up to £85,000 per person per financial institution. With that in mind, if you’re looking to move savings around for a better interest rate and you’ve got more than £85,000 in the bank perhaps you should consider splitting the money up between different banks and building societies.

Introductory bonus rates

You might find financial institutions offering great rates for a short period of time. These guys are okay to go with but make sure you ditch them and switch to another bank or building society when the introductory offer ends.

Notice period

This is very important as some banks pay a great rate of interest but sting you if you want to get your cash out early. If you’re interested in using a savings account that’s restrictive on when you can get to your cash, perhaps an ISA is a better way to keep your money safe.

Tax on interest

Unless you’re saving’s interest combined with your wages are less than £10,000 or you’re over 65 years old, you’ll be paying tax on your interest. Most financial institutions don’t mention tax when they advertise their great rates. For most tax payers, 20% of the interest earned goes to the taxman. For higher rate taxpayers, it’s 40% or more so this is something you should be aware of.

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