Which is the best savings account for you?

Opening a savings account is a great way to earn interest on the money you’re saving. There are various types of accounts available, which will allow you to put money away regularly and benefit from the best saving rates offered by the banks.

The best savings account for you depends on the type of access to your money that you require and how you like to run your account.

With so many options, which type of account should you choose for a savings account, and, which provides the best saving rates?

Why should you open a savings account?

The benefits of saving regularly means that you’ll be able to see your money grow, and have access to funds for emergencies or future plans.

For many, this means saving for university, saving up a deposit in order to buy a new house, or even saving for a well deserved holiday. Having a nest egg means that you have money available for emergencies, such as if you need a new washing machine or new car. It also gives you options in case you want to pay for further study or take time off to retrain for a new career.

Before you open a saving account, it’s a good idea to compare saving accounts, to find the best one for you.

Within this guide we will look at five different savings accounts.

The different types of savings accounts are: Easy access, notice, regular savings, ISA, and fixed term savings.

What is an easy access savings account?

Easy access savings accounts offer you the flexibility to add to and withdraw money from your savings account whenever you wish. You do not need to give notice in order to access (withdraw) your money. They are also known as Instant Access savings accounts.

Some accounts will come with an ATM cash card, giving you access to your money when you need it. These are simple accounts that let you earn interest on your bank account balance.

What are the best savings rates on instant access accounts?

The best savings rates are generally paid on accounts you run over the internet. Although with the right savings account you can also earn good rates on those you run through a branch, or post or over the telephone.

On internet and telephone savings accounts you can switch your money easily between your current and savings accounts.

Easy access usually also suggests they’re easy to open, and can often be opened online with an initial payment of around £1.

What are the advantages of easy access savings accounts?

What are the disadvantages of instant access savings accounts?

Should I open an easy access savings account?

Everyone should have an Easy access or Instant access savings account. They are good to have if you're saving for emergencies. You should try to have the equivalent of three months' worth of household bills in your account in case you are ill and unable to work or you lose your job.

Fixed-term savings accounts

Fixed-Term accounts also known as fixed-rate bonds, may be the best savings account for you, if you're happy to tie your money up for one, two or three years.

As the name suggests, they let you save money for a fixed amount of time, earning you interest whilst you save. Some start at six months and others last up to five years. It's sometimes possible to take money out during the term if you decide you need it, but you will lose interest if you do.

Is it worth getting a fixed-rate savings account?

In return for tying up your money, you earn a fixed rate of savings interest over the term. These accounts often pay the best savings rate, but there's a wide gap between the best savings account rate and the lowest rates.

Unlike some savings accounts, the interest is only paid at the end of the term. When the term ends, the money and interest is usually transferred into a current account. If you withdraw money during the term of the Fixed rate savings account you may have to pay an early redemption penalty in the form of lost interest.

What are the advantages of a fixed-rate savings account?

What are the disadvantages of a fixed-rate savings account?

Should I open a fixed-rate savings account?

The good thing about a Fixed rate savings account is that you know you will receive a set amount of interest over the term of the fixed rate bond. This can help you plan for the future.

It is also helpful to have the discipline of not being able to withdraw the money. Fixed rate savings accounts are good if you are saving for the medium term, especially if you have a financial goal in mind.

Notice savings accounts

A notice savings account requires you to give your bank or building society advanced notice before withdrawing any money.

This is usually between 30 - 90 days. But they can change the interest rates at any time without giving you warning.

If you require your money earlier than the required notice period, you may have to pay a penalty amount.

What are the advantages of notice savings accounts?

What are the disadvantages of a notice savings account?

Should I get a notice savings account?

A Notice savings account is good to have if you're saving for a house or future plans such as a new car, a holiday or a house project.

Check what the terms and conditions are for withdrawing money early. When the fixed period ends think about moving your money to another best buy savings account, as it may revert to a less attractive interest rate.

Regular savings account

A regular savings account requires you to pay a certain amount into the account each month. The range will vary depending on the bank or building society.

You're often required to keep up with the terms and conditions of the account, such as making monthly payments. The account is open for a year, before turning into a standard savings account. If not, the account could be closed and you will lose out on the potential to earn interest.

What are the advantages of a regular savings account?

What are the disadvantages of a regular savings account?

Should I open a regular savings account?

A regular savings account can be a good way to save if you want to get into the habit of saving, you are looking for a competitive and high rate of interest, or you cannot afford to deposit a lump sum into a savings account and want to build up a nest egg over time.

Individual Savings Accounts (ISAs)

An individual savings or investment account, known as an ISA, allows you to save a set amount of money tax-free over the period of 12 months (during the financial year which runs from April 6 one year to April 5 the following year).

Examples of an ISA include, Help to Buy ISA (no longer open to new applicants), Lifetime ISA and a Stocks & Shares ISA.

Some ISAs do have restrictions on how much you can save in them per year, such as the Lifetime ISA, which has a maximum amount of £4,000. This can form part of your overall ISA Allowance.

The current tax allowance for an ISA is £20,000 (for the tax year 2021-22).

What are the advantages of an Individual Savings Account?

What are the disadvantages of an Individual Savings Account?

Should I open an Individual Savings Account (ISA)?

ISAs are good to have if you are saving for a new house, car, university fees and living costs, or you want to shield your savings from tax and allow your money to grow tax-free.

How do I find the best saving rates?

There are thousands of savings accounts on offer from banks and building societies. While some pay very high savings rates, others don’t, but finding the best saving rates is an essential first step to making the most out of your money.

The best savings interest rates can earn twice as much as in accounts with the worst saving rates.

What are the best savings interest rates?

Being loyal to your bank is no longer the way to save. It’s now best to find a bank that can offer you the best interest for the money you're investing. A good way to find the best savings accounts is to compare savings accounts online, for example with Uswitch.

Banks and building societies regularly launch new accounts and it is these new savings accounts which often pay high interest savings rates.

If you already have a savings account, check the rate you earn and if it’s poor, switch to one with a high interest rate. Such a move can mean you earn much more on your savings.

Should I consider an online savings account?

The best savings rates tend to be offered by accounts that are online. This is because they’re cheaper for a bank or building society to run and they pass on the cost savings in higher interest rates.

If you prefer to run your savings accounts through a branch or over the telephone, you might end up earning slightly less interest, so it's important to compare accounts and find the best saving rates possible.

What are the best saving rates?

Check out the terms and conditions. Some pay a high interest savings rate but limit the number of times you can take money out of the account to, say, four a year.

Some high savings rates are boosted by an ‘introductory’ bonus, which you only earn on your savings for a short time. Once the bonus period runs out, you are left with a much poorer deal. This is when you should be shopping around for Best buy savings accounts with the view of moving your money to a more competitive savings account.

Compare high interest current accounts

Some current accounts can offer a better rate than some of the best cash ISAs on the market, so have a look around to see what’s available to you.

The obvious disadvantage to a current account is that your interest will be taxed, so the attractive rate advertised may not be as good as it sounds. It’s worth calculating the tax before comparing high interest current accounts with ISAs. However, everyone has a Personal Savings Allowance which means they can earn some money tax-free before they have to pay tax on it.

Getting into the habit of saving money will make it easier for you to do it. The best way to start this habit is to consider putting some money aside on pay day. This way you know how much money you have left after bills and living expenses, to put into savings each month.

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