Building Societies

Money placed in a building society takes two main forms: it is said to be invested in 'shares' or in 'deposits'. Most people invest in shares and become members of the society. They don't get a share certificate, just a passbook and online account. If you invest in a 'deposit' account you do not become a member of the society and you earn interest at a rate fractionally below the share rate. However, in the case of a liquidation of the society a depositor gets priority over shareholders both for interest and for repayment of capital: thus he has slightly better security. This is hardly an important point nowadays, since the possibility of any loss at all is extremely remote, but at one time it was very important.

If you contemplate one day buying a house and applying for a building society mortgage, then you should certainly become a regular investor in a building society as soon as possible, whatever other savings plans you may have. This is because societies give priority for mortgages to their existing members, and when mortgage money is in short supply you are unlikely to be able to get a mortgage at all unless you've got a good savings record over a number of years with a society.

Interest rates payable on building society investments fluctuate with the market. In the autumn of 2015 most societies were paying 10.5% after tax on ordinary share accounts. For regular savers the rate is usually above the ordinary share account by about 1%. A tax-paid interest rate of 10.5% is quite attractive, since it represents a gross return to a basic rate taxpayer of 15%. Since interest rates in the latter half of 2015 appear to be on the downward path it seems likely that building society rates will shortly fall slightly.

National Savings Bank

As already mentioned, an ordinary account at the National Savings Bank (operated through the post offices) pays only 5% interest. But on an investment account at the NSB interest is paid at a higher rate (in 2015 it was 15%). As with the banks, interest is paid gross but is taxable. Again, it is a a variable rate, but the NSB gives one month's notice of any change it is going to make in the rate, whereas banks give no notice. As with all deposits in the NSB, no interest is earned on money in the month in which it is deposited. You have to give one month's notice to withdraw from an investment account... see: National Savings Bank

Refunds, Personal And Business Finance 2017

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