There are two main types:
- an 'easy access' high interest account, where cash is usually immediately available
- a fixed-term saving account (or 'bond', in UK), where you must either give notice or wait until the maturity date of the bond (or lose some or all of the accrued interest)
- To accumulate cash for another level of income investment in the Income Pyramid
- To create a substantial 'buffer' of cash to cover large family emergencies or large purchases
Because this strategy is all about income, you will want the highest rate of interest you can get (subject to the length of time you can keep your money tied up. This will require some DIY research, because the rates on offer change almost daily. (Savers lose £500m by ignoring fixed bonds)
Key factors to consider:
- how long do your want to tie up your cash?
- is your deposit safe (i.e. what guarantees are there in case of failure of the bank or financial institution)
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.