Savings account ought to be one of the most useful and easy to understand personal finance products that you can get. However with every bank and building society competing hard for your money the choice of accounts can look bewildering. It’s not possible – well not in a page – to cover every type of account. Instead we’ll try to explain some of the basics so that once you decide what sort of account you want you’re better to prepared to hunt out the best ones.

Try this; take a sheet of paper and draw a line across it. Write “instant access” at the left side, and “long term bond” on the right. Don’t worry too much for now about what these terms mean if you’re not used to them.

Then have a good think about what you want your savings account to do for you. Ask yourself how often you’re going to make withdrawals from it, and any other sources of cash or savings that you want to use as well. If you treat your savings account as a way of either providing you with an income, or sometimes topping up your income, then you’ll need to invest in an account that always allows you access to your money and doesn’t penalise you too heavily for making withdrawals. You’re at or near the left hand side.  But if you have some cash that you’re pretty confident you won’t need in the fairly short term it’ll probably make sense to invest in an account gives you more interest if you commit to having some restrictions on what happens if you want to take your money out. No surprises to know that puts you at the right hand side.

There’s no magic behind why banks and building societies offer savings accounts, they need your money so that they can lend that money in the form of loans, mortgages and credit cards. As a rule of thumb the more you’re prepared to lend to them, and the longer you’re prepared to lend it to them the more interest you’ll earn. Keep this point in mind and check what you’re being offered against this idea.

Once you’ve worked through this initial part you can start to think about whether you want, for example an account that encourages you to save regularly, or if having an account that pays you more interest once you have saved more than a certain amount is for you. Obviously you’ll also want to have an account that suits your lifestyle – if it’s not convenient for you to go to a local bank to get money then you’ll need an account that allows you to move money to a current account over the internet.

Remember to go back to basics if you get stuck.