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The chances are you are using a UK savings account already, if you believe it's best to put a little money away each month. Banks and building societies have a plethora of different savings schemes and products, but they all work in essentially the same way. Basically, when you put your savings into an account you accrue interest; this interest rate is added to the total balance in your account by the bank on a regular basis. The more money you have in your account, and the longer you leave it there, the higher the interest you build up. This is a good short-term way of saving money; if you are planning to save over a longer period of time there are other products that you may want to consider that could make your money work that little bit harder on your behalf. See our investment section for more information on how to invest your savings over the long-term.

The first thing you should know before investing your money in long-term savings is that they really can be long-term. In other words, your money could be tied up for a considerable amount of time, so it is important you are sure you won't need the money in the short-term. Accessing funds before a policy matures usually incurs hefty charges, and if you think you may need to do this, go for a more flexible, albeit less lucrative, means of investing your savings.

So what short-term options are available for your savings?

There are two principal products that short-term savers go for: the regular savings account or the cash ISA (Individual Savings Account). A regular account works like any other bank account, and apart from a small minority where up to 90-days' notice can be required, most allow withdrawals to be made at any time. However, the fewer the withdrawals and the more you save, the higher the rate of interest that you get.

Cash ISAs can be used to save up to £3,000 each year without paying any income tax or capital gains tax on the interest that you accumulate. Be aware that if you withdraw cash from the account, you cannot then top it back up within that financial year if it takes your total deposits above the £3,000 yearly limit. For example, if you pay in £1,000 at the start of the financial year and then withdraw £500 a few weeks later, you are only allowed to deposit a further £2,000 that year, even though it only takes your balance up to £2,500.

© The Pink Fridge Online Magazine 2008 - Savings