Financing your holiday

Financing your holiday: where are the best savings rates?

A holiday is one of those non-essential purchases that can actually be really needed, as a palliative to the stress of everyday life.  It can therefore be tempting to borrow money to finance a break, but in the end this makes the whole affair more costly.  If you take a quick look online, for example at Santander savings rates, you’ll find that there are several options suitable for saving up money for your holiday.  Here we’ll look at some of these products, and the relationship between locking your money away and savings rates.

For those new to savings accounts and savings rates, the general advice for anyone looking to develop some growth on cash is to first look at the cash ISA options available.  ISA products, which can be either a stocks and shares investment, or the cash ISA (which is basically a savings account) have the important benefit of being tax free.  This means that the interest developed on funds within the specified annual limit will not be taxed, in contrast to normal savings accounts, where the interest is taxable.  Stocks and shares ISA products carry the risk inherent in any investment, so are perhaps not so suitable for those with limited money to save.  The cash ISA on the other hand can develop better growth for your holiday fund than other products with seemingly higher savings rates, thanks to the tax break.  With the annual limit for cash ISA deposit currently at £5,340, you are definitely in the right ball park in terms of funding for your holiday.

If you have an expensive break in mind you may need to save for this holiday for a few years.  If you have already maxed out the ISA option, the next best option in terms of savings rates is often the fixed term savings bond.  Fixed term savings bonds tend to offer higher rates of interest than instant access savings accounts, as a reward for agreeing to lock away your money with the bank for an agreed term.  This term is commonly one or two years, and at the end of this period the bond is said to mature, and deliver the fixed rate of interest you were offered at the outset.  Many modern fixed rate savings bonds now promise to track above the Bank of England base rate of interest, allowing you to benefit from any rise in interest rates during the term of the bond.  Fixed rate savings bonds are a great way to save for a holiday, as the money deposited is locked away.  There are penalties incurred for withdrawing the money early, which can be a loss of interest, as well as a delay in accessing the funds.  This can of course encourage you to leave your holiday fund alone, but perhaps also means that fixed rated savings bonds are unsuitable as your only savings option, as there is no real leeway should you need to access the money in an emergency.