By shopping around you might be able to find a better rate of interest from a high interest savings account, rather than a savings account attached to your current account.
However, it is getting tougher to find savings accounts that pay a high rate of interest because the Bank of England has cut interest rates. So banks and building societies have reduced their rates as well.
A savings account is a place where you deposit cash in return for earning money on it, known as interest.
Finding an account that is paying a high rate of interest is one of the best ways to make the most of your savings. It's possible to earn up to £1,000 interest on savings without being charged tax on your interest income, this is thanks to the Personal Savings Allowance introduced by the government.
That depends on what type of account it is. Some savings accounts allow you to withdraw money without penalty whenever you want, while others ask you to give notice and fixed rate accounts tie up your money for a year or more.
When you're thinking about the type of savings account to choose, think about when you might need the money. Will it be a short term savings account that you will need to access in a couple of weeks or months? Or can you afford to tuck your money away for a year or two in order to earn a better rate of interest?
Consider switching to a higher interest savings account if you find your existing savings account isn't up to scratch.
You can check the rate you're currently receiving against the best buy high interest savings accounts on our comparison table. Another point to bear in mind is that interest rates are often available for a fixed period. After that, the interest rate you receive may revert to a lower and less competitive rate. This means that in order to continue to earn a high rate of interest on your money, you will need to switch account or switch provider.
Under the government compensation scheme, known as the Financial Services Compensation Scheme (FSCS) each account is protected up to £85,000. The only thing to bear in mind is that some banks are subsidiaries of larger organisations. So you're only protected for £85,000 per person per account, for the organisation as a whole.
For most people, interest on their savings isn't taxed, thanks to the Personal Savings Allowance (PSA). The PSA, enables you to earn £1,000 worth of interest in a tax year without having to pay tax. This is the case if you are a basic rate taxpayer. If you're a higher rate taxpayer the allowance falls to £500, and additional rate (45%) taxpayers receive no PSA at all. So whether your saving interest is taxable, depends on your tax position and whether you have interest coming in from any other sources.
If you're looking for a savings account that's completely tax-free, you could as an alternative consider an Individual Savings Account (ISA). You can save up to £20,000, and all the interest grows tax-free for ever. As interest rates are so low, however, there's little difference between the best interest rates offered on high interest savings accounts, and those offered in Cash ISAs.
There are a number of different types of savings accounts and in order to choose the best high interest savings accounts it helps to understand the pros and cons of each type of account.
The best high interest savings account in the UK with the highest yield used to be those accounts, which tied up your money for several years. In return for depositing your money for two to five years, you were able to earn a higher rate of interest on your cash.
As a result of interest rates being very low, however, there's not much of a difference between the rates paid on your money, even if you commit to save for several years.
Easy access savings account
If you're looking for a place to keep your cash and one which doesn't charge a penalty, or require notice to withdraw your money, then an easy access savings account might be suitable for you.
These accounts don't pay the highest yields in terms of interest, because you're sacrificing higher rates for the convenience of being able to access your money whenever you wish.
Some notice accounts pay a slightly higher rate of interest on your money, but you do need to notify your bank, building society or savings provider. You may also have to wait a month or two before you can get your hands on your cash.
Fixed rate account
If you can afford to tie up your money for a year or more, then a fixed rate account may pay you a higher interest yield on your cash. However, the difference between fixed rate interest rates and easy access accounts isn't significant at the moment.
You need to weigh up the benefit of the slightly higher interest rate with the fact that you will not be able to get hold of your money for 12 months or more, depending on the term of the fixed rate product you have.
Regular savings account
If you're looking for the best interest savings account and can save on a regular basis each month, then you could consider a Regular savings account.
You must be able to make a contribution to your account each month, and withdrawals aren't usually allowed on your regular highest interest rate savings account until the end of a 12-month period. If you do need to get hold of your money early, you'll probably end up losing some interest you would have earned on your highest savings account.
Check the savings rates on your existing savings accounts carefully. Don't assume that if you see a high interest savings rate advertised for your account that's what you're actually earning.
Banks and building societies often pay high interest savings rates to new savers and less to those who have had the account for a while. Some old accounts may well be paying less than one per cent on your savings, and it could well be time to switch and find a higher rate interest savings account.
Look to see if the advertised best interest rates on savings accounts are artificially high. Some add an 'introductory bonus' that makes the savings rates look higher than they are.
If you pick an account with a bonus, make a diary note of when it runs out and look for a new high interest savings account then.
Look at the fine details on savings accounts - they could have a high interest savings rate because of restrictions. There could be limits on the number of times you can take money out each year. Or you could lose all your interest on the account for the month if you take money out.
Find out more about savings accounts, to decide which account might be right for you.