One of the most common ways to save is to invest in a deposit account. Different accounts offer different interest rates which will affect the return over time.

The first £1,000 of interest is tax free. If you are paying higher rate tax, you can only earn £500 interest tax free, while 45% taxpayers have no tax exempt savings allowance at all.

You should always check that you are covered by the FSCS guarantee which will protect your savings up to £85,000 in any one institution. For this reason, individuals with high amounts of savings may choose to save their money across a range of institutions.

If you are married, it can be sensible to put savings in the name of whoever is basic rate tax payer because they can earn more without paying tax.

Whilst keeping your money in cash is considered less risky than investing, there are also a range of risks with this, including but not limited to:

• Interest rate risk: Savings accounts are not intended for accumulating high returns on the money you put into them. Change in interest rates affect the relative attractiveness of different investments for example, rising rates present a risk to fixed rate products. 

• Inflation rate risk: Inflation rate risk is major consideration of any investment plan, that is, the risk that inflation will reduce the interest rate returns over time. The best long-term protection against inflation is provided via long-term investment in real assets.

If you do not require short-term access  to your money, putting some of your cash into investments could allow you to earn more from your money and keep up with rising prices. You’re always taking on some risk when you invest, with the amount varying depending on the different types of investment.

Whether you’re investing with a goal in mind, or simply saving for retirement, it’s important to understand risk. Specifically, you should understand your own attitude to risk.

Investing in fixed interest securities (such as bonds) are generally considered lower risk, whilst investing in shares of companies can generally be considered higher risk. 

Investment timescale is also an important factor that can influence your investment.  Historically markets go up, and they go down. Having an appropriate investment timescale can help to mitigate the impact of volatility. Therefore investors for a longer-term timescale may feel more comfortable taking higher levels of risk as it offers more opportunity for markets to recover from any dips before they access their funds. 

An Individual Savings Account ISA is a way to save money without paying any tax on the interest, the gains, or the growth; unlike a regular bank account or general investment account.

There are 2 main types of ISA available to adults in the UK:

• Cash ISA
• Stocks & Shares ISA's  

Applicable for: UK residents

Annual allowance: £20,000 per tax year

A cash ISA, like the name suggests, holds your money effectively in a bank account and you benefit from the interest rate applicable. 

A stocks & shares ISA on the other hand, provides the opportunity to invest in the stock market.  Here the gains can be significant, but you may also suffer losses depending on the underlying performance of the investment held meaning this is a riskier option than a cash ISA.

With regards to investment term, cash ISAs currently offer very low interest rates and therefore may not be suitable for the longer-term investor.  However, should you think you may need access to your savings within a few years of investing, the lack of fluctuation may be more suitable.

Stocks & Shares ISAs are more suitable for a long-term investor, perhaps 5 years or more.  This will generally allow short term ups and downs to iron out and tend to lead to longer term gains.  It would be unlikely that you would see suitability in taking a Stocks & Shares ISA if there is a clear need for the funds in a couple of years.

A general investment account (GIA) is a simple way to invest more money once you've used up all of your ISA limit for the tax year. There are no limits on how much you can invest each year, however it doesn't have the tax-efficiency of an ISA or pension. 

With a general investment account, individuals have the opporunity to invest in a range of securities without the need to lock money away until a certain age (like a pension) or with limits to how much can be invested in each year (pension and ISA). 

However, it is important to remember that investment accounts do not offer the same tax benefits as pensions or ISAs meaning that any income you receive from your investments will be taxed as savings income and any gains that you make when selling your investments will be subject to capital gains tax. 

Savings income tax 

In a General Account, any dividends and/or interest that your investments generate are taxable in the year you receive them, and you'll have to pay the tax with your next self-assessment. 

Basic-rate taxpayers are entitled to a £1,000 personal savings allowance each tax year, higher-rate taxpayers are entitled to a £500 allowance and additional-rate taxpayers do not have any savings allowance. Interest income above this rate is taxed at standard income rates.

For dividends, taxpayers are entitled to a £2,000 dividend allowance each year. Any dividends above this allowance are taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. 

Capital gains tax 

When you eventually sell your investments, you will need to pay capital gains tax if your gains exceed the HMRC limit, which is currently £12,300 for the 2022/23 tax year.

Capital gains tax rates are 10% for basic-rate taxpayers and 20% for higher-rate taxpayers.

Saving for a child is a great kick start for their future. Not only can they start their adult lives with some savings in hand, but getting them involved with saving early in their life also helps them learn important lessons about money.

Personal Pension

A Personal Pension is a tax-efficient way to start building a pension pot for a spouse or child who have no relevant UK earnings. This is generally considered a long-term savings product as funds cannot be withdrawn until aged 55 (under current regulations).

The selected funds will affect the risk level of the SIPP. Assuming no relevant UK earnings, children will receive basic tax-relief on contributions up to £2,880 each year on a SIPP, meaning the gross annual contribution can total £3,600. You won’t pay any CGT on a SIPP.

Under current regulations, 25% of the total value of the SIPP will be tax-free, with the remaining 75% taxed at the individual’s marginal tax rate at the time of the withdrawal.

Junior ISA

A Junior ISA (JISA) is a long-term, tax-free savings account for children who are UK resident and under the age of 18. The child can normally take control of the account from age 16 but will not be able to withdraw until age 18.

Junior ISAs are a medium-long-term savings product. Money cannot be withdrawn until the child turns 18. You can hold cash or stocks and shares in a Junior ISA, or have a combination of both, ultimately affecting the risk level. You can contribute £9,000 each year into a JISA.

JISAs are a tax-free savings product, meaning you will not pay any income or capital gains tax on savings.You will not get any tax-relief on any contributions made into a JISA. ISAs are a tax-free savings product meaning you will not be taxed on any withdrawals.

Child Trust Fund

If a child was born between 2002 and 2011, they might have a Child Trust Fund (CTF). 

Since April 2015, parents have been able to transfer savings from Child Trust Fund accounts to Junior ISAs.

If the CTF is not transferred, when a child reaches 18 they’ll still be able to access the money.