Banks and building societies offer a wide range of different savings accounts. We take a look at the various types available and how to choose one that’s right for you.
What is a savings account for?
There are many reasons you might open a savings account. You could be saving for a big-ticket item like a deposit for a flat, for a rainy day, or simply just to keep some money separate to your current account so you don’t spend it.
You may choose to open more than one savings account to organise your money and help you budget.
The different types of savings accounts
There are a wide range of savings accounts on the market to cater to different needs – depending on the amount you’re looking to save, to whether you’re planning to save regularly or as a lump sum. These different types of savings accounts have different rules and restrictions that you need to be aware of.
Here’s an overview of the different types of accounts available:
Fixed rate bonds – also sometimes referred to as a fixed rate or fixed term savings account, fixed rate bonds pay a rate that stays the same for a specific period of time. These can range from a few months to several years. You will normally get a higher rate for these accounts than instant access accounts. However, these accounts will either have a restriction on taking money out during the term of the bond, or won’t allow any withdrawals until the bond has come to the end of its term.
Instant access and easy access savings accounts – with an instant access account you can make unlimited withdrawals, with no charges or limits to the amount of money you can take out at one time. With an easy access account you’ll still have freedom to withdraw your money, but there may be a short wait to take money out or a limit on the number of withdrawals. These accounts usually pay a lower interest rate.
Limited access – limited access accounts are ideal for those who want to save money and only need to make a limited number of withdrawals. Some accounts will allow you more withdrawals but at a reduced interest rate. Others won’t allow any more withdrawals than the account states.
Notice accounts – notice savings accounts have no fixed term but require a notice period before you can withdraw your money. They’re ideal if you don’t want to lock your savings away for a long time but are confident you’ll know in advance when you need access to your money.
Regular savings accounts – regular savings accounts are perfect for those looking to save little and often (although, in many cases, there’s nothing to stop you putting aside a larger amount each month). They tend to provide more interest than an instant access savings account, but there are usually more restrictions involved.
Cash ISA accounts – Cash ISAs are savings accounts that pay interest free of tax, up to £20,000 per year. From 6 April 2024, the government introduced a range of changes to ISAs. This included allowing savers 18 and over, to open multiple ISAs of the same type in the same tax year, with more than one provider. The only exceptions to this rule are Lifetime and Junior ISAs. There are different types of cash ISAs available e.g. easy access, notice and fixed term.
How to choose a savings account?
Choosing the savings account that would be best for you will depend on what you’re looking to achieve and your individual situation. Remember to consider:
- How regularly you want to save
- How much you plan to put aside
- Whether you need access to your cash
- Whether you would be better off not being able to dip into your money regularly
- Any other savings accounts you may already have
Even within each type of account there will be variations, so always read the individual account’s terms and conditions carefully before you sign up.
You should also think about whether you’re likely to exceed your personal savings allowance (PSA) this year. Your PSA is a tax-free allowance that allows you to earn interest on your savings without paying tax on that interest. Read more on that here.
Savings accounts in the UK are protected by the Financial Services Compensation Scheme (FSCS) which will protect savings held with a provider for up to £85,000 per person, should the company go into administration. Therefore, if you have more than £85,000 in savings, it may be worth spreading the funds across different banks or building societies. More details can be found at Financial Services Compensation Scheme | FSCS
