2.2 The Products And Their Uses
2.2.1 Bank Accounts
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Deposit accounts will generally pay interest net of 20% tax. The
sum deducted can be reclaimed by non-taxpayers. Alternatively, both
non-taxpayers and taxpayers who are not UK resident may apply to
have interest paid gross. Higher rate taxpayers will pay the additional
20% tax.
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The different types of bank account include:-
- Current accounts, some of which pay interest, some of which do
not.
- High interest cheque accounts, which are more of a high interest
deposit account, but with cheque facilities.
- Deposit accounts, which generally have a notice period to avoid
loss of interest, but are otherwise instant access accounts.
- Money market accounts vary from short term 'overnight' facilities
to fixed term no access accounts with a high minimum requirement.
- Term Accounts, similar to money market accounts but are usually
fixed term, fixed rate of interest, but not so high minimum input.
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Risk in bank accounts is not so much one of loss of investment,
although failure of a bank is not unknown, but more loss of alternative
opportunity, and reduction in value if inflation should be higher
than the interest paid.
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Accessibility, contribution limits and penalties vary considerably
from account to account, and may depend on overall saving or investment
levels of the individual account holder.
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Bank accounts are generally useful for short-term purposes, in
addition to the cash flow facility provided by cheque accounts.
Generally not for medium to long-term investors, or those with anything
other than medium to low risk requirements.
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The same can generally be said for building society accounts and
TESSAs, although the latter has neither the cheque facility nor
easy access without penalty
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