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?
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.
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.
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.
Small deposit amount
Instant access to your money. So good for emergencies
No fee for withdrawal
No maximum saving amount, and save when you want
Usually have lower interest rates
Possibility of paying tax on the interest
Easy access to account, can make it harder to save
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 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.
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.
Guaranteed interest rates for a fixed period of time
Allows you to invest a lump sum amount
Can offer better investment options than an easy access account
You are tying your money up for a specific period of time, with the intention not to spend or to save for a set period of time
If you’re allowed to withdraw money during your ‘fixed term’, you will lose out on the maximum interest amount
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.
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.
A notice period makes it difficult to withdraw money frequently - this can be good if you need the discipline of not being able to dip into your savings whenever you need to
You can earn a high interest rate
Having a notice period, can also be considered a disadvantage withdraw money
Subject to fine/penalty for early withdrawal
You have to state how much you wish to withdraw
Not suitable for emergency situations
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.
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.
Potential for higher interest rates
Good for new savers
Helps form habit of saving/provides structure
Interest is paid at the end of the 12 months
Account becomes a standard savings account after a year, meaning the rate will not remain the same
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.
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).
You can save in multiple ISA accounts, as long as you don’t exceed your tax allowance for the year
Your savings in these accounts are tax-free
Unused allowance for the year doesn't get carried over into the following year
Once you have put the money into an ISA, you should try to leave it invested
After April 2021 the lifetime ISA will return to charging a withdrawal fee
With some ISAs once you withdraw money, you can’t then replace the amount you have withdrawn.
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.
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.
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.
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.
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.
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.