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Start a pension or open a savings account?

Whether you’re one of the 17% of Brits not saving enough for retirement or amongst the fifth of those who believe they won’t be able to afford to retire, it’s increasingly important to plan for your future as early as possible. Are you starting to save for retirement and considering starting a pension or opening a savings account? On this page, you’ll learn the benefits of both, so you can decide which option best suits you.

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What are the benefits of opening a savings account?

Savings accounts allow you to earn interest on your deposits. The benefits of opening savings accounts include the following:

  • The flexibility to access your money
  • Competitive interest rates, with higher interest rates on long-term savings accounts
  • Quick and easy set-up and management
  • Earn £1,000 in interest tax-free per year if you’re a basic rate taxpayer
  • Higher rate taxpayers can earn £500 in interest tax-free per year

With many different savings accounts available, it’s important to shop around for the best interest rate on the right type of savings account for you.

Different types of savings accounts, such as notice accounts and fixed rate bonds, offer effective ways of growing your savings. Both are lump sum savings accounts that offer competitive interest rates. Notice accounts give you the flexibility to withdraw money from your savings on a set notice period, while fixed rate bonds are a good option if you can lock your money away for a set time. The fixed interest rate means you’ll know exactly how much interest you’ll earn. Fixed rate bonds might be right for you if you have a lump sum of money that you want to grow without having to worry about interest rate changes or stocks and share price volatility.

What are the benefits of starting a pension?

The obvious benefit of a pension is that they’re tailor-made for the purpose of retiring. Most people can contribute to their pension before their pay even reaches their pocket through their employer, making pensions an easy way to automate your retirement savings.

Another benefit of starting a pension is the tax relief you’re eligible for on contributions you make. If you’re a basic rate taxpayer, you can save up to 20p in tax for every £1 you contribute to your pension, rising to 40p for every £1 you contribute if you’re a higher rate taxpayer. If you’re an additional taxpayer, you can save 45p in tax for every £1 you pay into your pension.

If you’re eligible, you’ll automatically enrol in a workplace pension scheme (unless you actively decide to decline), which gives everyone the opportunity to start saving into a pension.

Pensions aren’t as flexible as savings accounts as you can’t make a withdrawal until you’re 55. However, when you can make withdrawals, you are eligible to take out as much as you need from your pension at any time. You can withdraw up to 25% of your pension as a lump sum tax-free, and any withdrawals you make after that are taxed at your personal rate.

 

When should I start saving for retirement?

The simple answer is that regardless of whether you pay into a pension or open a savings account, saving for retirement as early as possible is generally the best thing to do. The more you can put away while you’re working, the more comfortable you will be when you retire.

Should I open a pension or a savings account?

How you save for retirement depends on your circumstances. You don’t have to choose between a pension or a saving account; you can grow your money through both and enjoy the benefits that each has to offer. Keep in mind that it’s not a matter of a pension vs savings accounts, it’s about how best to ensure that you have enough to retire comfortably.

If you want to quickly and easily open savings accounts from a range of banks, register for a Raisin UK Account and apply for free online today.

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