New blog – As mentioned in my blog on starting an online business (which can be found here) I’m starting an online t-shirt business to show how easy (or hard) it is. Before I can start the company though I need to hit a savings target of £500. So today as part of the first steps of setting up the Money Mental Clothing co I’ve been looking at the wonderful world of savings accounts!
Different types of savings accounts:
The first problem I found was there are literally thousands of different savings accounts in the UK. There are ISAs (individual savings accounts) which allow you to save up to £20,000 a year tax-free but have restrictions on when you can withdraw with most only letting you do a withdrawal at the end of the year (unless you want to pay a penalty on your withdrawal). There are also notice savings accounts where you have to give notice (30, 60 or even 90 days) before you can make a withdrawal, regular savings accounts where you contribute a regular amount of money each month and instant access savings accounts which pay a lower rate of interest but where you can withdraw your money straight away. As well as all of these there are also app-based savings accounts where you can move money from your bank account into a savings account at the touch of a button on your phone.
So given the variance in the different types of account and the variety it was critical for me to work out what I want from a savings account. I defined my main requirements as:
- Protected by the FSCS (financial services compensation scheme) as I didn’t want to lose my hard earned money.
- Good interest rates. It’d be nice to earn some money on my savings.
- The ability to withdraw money straight away as when I’ve reached the £500 target I want to be able to start spending it on the business!
The third requirement to be able to withdraw money really limited me to a choice of either instant access savings accounts or app-based savings account as I didn’t want to pay a penalty on any interest I earn or have to wait for ages to get at my money. The interest rate I earn is a secondary consideration to having somewhere to store the money I need to get the company started. I was tempted by the idea of using one of the app-based savings accounts on my mobile phone as this would have made it super easy to save money but unfortunately, I couldn’t find any that are protected by the FSCS.
Picking a savings account:
With my requirements in mind and having settled on the type of savings account I needed, I started doing some research into the best savings accounts via that traditional method of finding anything out on the internet, typing ‘best savings account’ into google. This soon led me to Martin Lewis and his website money saving expert. There were a few recommendations on his website although I was surprised to see RCI bank not on there. I know (as I currently use them for my main savings account) that RCI offers the best rate of interest for instant access savings in the UK at 1.30% so this made me decide not to trust his recommendations and look elsewhere instead. (if you’re interested in signing up for an account with RCI you can find out more about them here). This led me down the route of using one of my favourite methods for finding out prices the price comparison websites. I decided to use Go Compare for my search as I know Money Supermarket own Money Saving Expert and I’d lost some trust for their website as a result of them not recommending RCI.
Go Compare quickly led me to TESCO bank. (I decided not to use RCI as I already have an account with them). Now I already use TESCO bank for my mortgage so I felt quite confident in using them for my savings as well. However, when going through the signup process I noticed that they only pay interest annually. This is no good to me considering I plan to start making withdrawals in a couple of months so back to go compare I went. Eventually, I was able to settle upon Ford money (i thought they only made cars so this surprised me!). Despite only offering an interest rate of 1.22% I was attracted to them by the fact that they had a quick and easy online signup, I can send money online to them from my bank account and they can pay interest monthly rather than annually. Plus of course they’re FSCS protected. So a few clicks later and the Money Mental Clothing co savings account had been set up with the grand total of £34 in savings!
So what has my search for a savings account taught me? Firstly that before even thinking about setting up a savings account it’s important to work out what the most important features you want from your savings account are. If it’s a higher rate of interest than be prepared for the fact that you’ll have to deposit a large amount of money and wait up to a year before you see any of that interest. If immediate access to your savings as and when you need them is more of a priority than an instant access savings account is a better option but you will earn a lot less interest on your savings! Also watch out for savings account that include a bonus rate on the interest they offer. This means that they pay a higher percentage for a period of time (usually 12 months) but after that period has ran out the interest rate drops right down.
So there you have it. The Money Mental clothing co savings account is set up and money is started to be saved. I’ll be giving regular updates on the savings challenge via the money mental twitter account (so make sure to follow @moneymentaluk on twitter!) and will blog more about the plans for the company as they become clearer. Currently, I’m at the stage of having picked the company name and strapline (details of which will remain shrouded in secrecy until the launch date for commercial reasons) so the next stage will be picking the software to make the clothing designs with, producing some designs and getting a website set up.
In the meantime, the subject of the next blog should be the long-awaited second part of my guide to setting up an online business so look out for it soon!