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A savings account is somewhere for you to put any spare money that you don’t need for your usual living expenses. They pay interest on the money you deposit and are available from banks and building societies, as well as specialist savings providers.
Savings accounts are ideal for storing an emergency fund to cover any unexpected expenses, as well as to save for specific goals such as a holiday, a major purchase or a special event.
They can help you to build up a savings pot and, because they typically pay a higher rate of interest than current accounts, savings accounts allow you to earn a better return on your money.
The interest you earn on your savings is taxable but, if the interest you earn is below your Personal Savings Allowance (PSA), you won’t need to pay any tax. This allowance is set at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.
Bear in mind that those on lower incomes (up to £17,570 per year) could earn up to £5,000 on their savings without paying tax on it. See more on our guide on how your savings are taxed.
If you’re at risk of being taxed on your savings, an individual savings account (ISA) allows you to earn interest tax-free.
Inflation affects how much your savings are worth in real terms and, depending on the rate of inflation and the rate paid by your savings account, it could erode the value of your savings.
For example, if the rate of inflation is 4% but your savings are in an account paying 2%, your money will lose some of its purchasing power as it won’t be able to buy as much as it did before.
This is why it’s important to find a savings account that pays a higher rate than inflation to ensure your money continues to grow.
Deflation is when inflation falls below 0%, which means prices have fallen and your money should buy more than the previous year. Savings rates are likely to be very low during a period of deflation, but the purchasing power of your money should still increase.
There are several types of savings accounts that you can choose from, depending on your financial situation and savings goals.
Easy access savings accounts, sometimes known as instant access accounts, are the most flexible type of savings account. Many allow you to make as many deposits and withdrawals as you choose, without any restrictions, which can be useful if you want to be able to dip in and out of your savings.
However, bear in mind that some accounts, particularly those paying higher interest rates, may limit the number of withdrawals you can make. Also, these accounts pay a variable rate of interest, which means the rate could change at short notice.
Fixed rate bonds typically pay higher rates than easy access accounts as you agree to lock your money away for a specified period. The rate is guaranteed for the duration of the fixed term.
You will usually only be able to deposit into the account for a limited period after opening and won’t normally be able to access your savings until the end of the term. Fixed rate bonds offer terms ranging from several months to several years.
Notice accounts are like a halfway house between easy access and fixed rate savings. You will often be able to add to these accounts without restriction but, when you want to withdraw any money, you will need to wait until the end of the specified notice period. Notice periods can typically range from 30 days up to six months.
If you don’t have a lump sum to put into savings but instead want to deposit a sum of money into a savings account every month, regular savings accounts may be worth considering. These accounts typically require you to deposit a minimum amount each month and may set restrictions on withdrawals. Because of the conditions related to these accounts, regular savings accounts can often pay relatively high rates.
Children and teenagers aged under 18 will find there are specific children’s savings accounts available. They may come with certain age limits and allow parents or guardians to manage the account until the child reaches a certain age. There are easy access and fixed accounts available.
If you want to avoid paying tax on your savings, a cash ISA is worth considering. See the latest rates on our regularly updated ISA charts.
Whether you have to give notice before withdrawing from your savings depends on the type of account you have. You don’t need to give notice on easy access savings accounts, but you do if you want to withdraw from a notice account.
Notice accounts come with different notice periods, ranging from as little as seven days to over 90 days. This is the length of time you’ll have to wait after requesting the withdrawal before receiving your money.
Although you don’t need a savings account by law, most people will find them a useful way to manage their finances, build up their savings and earn interest on their money.
Savings accounts allow you to separate money that you’re putting aside for the future from your day-to-day spending money that you need for bills and shopping, for example.
If you use your current account for your savings, you may be tempted to spend this money instead of keeping it saved for emergencies, a house deposit, a holiday or any other goals. Furthermore, you would miss out on the higher rates of interest that savings accounts can offer.
You may think it’s not worth opening a savings account if you don’t have a large sum to deposit, but getting into a habit of regularly adding to a savings pot can help to improve your financial stability. By building up your savings, you give yourself a financial cushion if your income drops or if you’re faced with an emergency expense, such as a car repair, which means you may be less likely to turn to expensive forms of borrowing to cover these costs.
Savings accounts don’t typically charge any fees as standard.
However, some fixed rate savings accounts and notice accounts may apply certain charges such as:
If you have an easy access savings account, you will often be able to withdraw your money whenever you like. However, it’s worth bearing in mind that some of these accounts may only allow a limited number of withdrawals per year, otherwise the provider will close the account or pay a lower rate of interest, for example.
For notice accounts, you have to wait until the end of the specified notice period before accessing your money, unless the provider allows earlier access for a penalty charge.
If you have a fixed rate bond, you normally won’t be able to access your money until the end of the term, which is why it’s so important to think about how much you deposit in one of these accounts.
When comparing savings accounts and deciding which one is right for you, there are several points to consider.
If you’re new to saving, an easy access savings account is likely to be the simplest and most user-friendly option. These accounts typically allow you to add to your savings when you choose and make withdrawals if you need to access the money.
However, look out for any accounts that restrict the number of withdrawals you can make or that come with a bonus rate for a limited period.
If you’re at the beginning of your savings journey, it may be worth looking for accounts without any complicated terms and that don’t require a large opening deposit.
Instead of an easy access account, new savers may also be interested in a regular savings account. While these typically come with more terms and conditions, they can help to encourage a regular savings habit as they usually require you to deposit a minimum amount in the account each month.
It should be fairly straightforward to open a savings account. Depending on the account you choose, you may be able to open it online, by mobile app, in a branch or over the phone, for example.
You will usually need to provide some personal details, including your full name, date of birth and address history, when opening a savings account. You may also need to show some proof of ID, such as a driving licence, so the provider can verify your identity.
These identity checks don’t involve any credit checks and won’t affect your credit score.
You may also need to provide other information during the application process, such as details of another bank or building society account that will be “linked” to the savings account for deposit and withdrawals, for example.
Once you’ve provided all the necessary details, you will usually need to deposit a minimum sum to open the account. This could be as little as £1 or as much as £10,000 or more.
Bear in mind that many providers require you to be a UK resident and to confirm that the UK is your only country of residence for tax purposes.
Savings rates have been higher over the last couple of years than they have been previously, which means anyone who hasn’t reviewed their savings and switched accounts may be earning a below-average rate of interest.
For example, if you’ve put your money in a savings account with your current account provider for convenience, you could be missing out on significant amounts of interest.
The good news is that it’s easy to open a new savings account and switch to a higher rate.
When choosing a new savings account, it’s important to think about what you want to do with your savings. For example, if you have a lump sum that you won’t need to access for several months or more, you may want to look at locking in a rate with a fixed bond. Alternatively, if you want to have access to your savings so you can dip into them in case of an emergency, for example, an easy access account is likely to be most suitable.
Once you know the type of savings account that best fits your requirements, you can compare accounts on our charts. You can view which accounts offer the best savings rates, as well as comparing other features such as management methods and opening requirements.
If you’ve found a savings account with a higher rate of interest, you can then move money from your existing account into the new account. Bear in mind that, if your savings are locked into a fixed rate bond, you may need to wait until the end of the term before switching.
After you’ve moved your savings to a higher-paying account, that’s not the end of the job. You should regularly review the rate paid on your savings account (particularly if it’s a variable account as providers may change the rate) and compare it with the top savings rates on the market to ensure you’re still getting a competitive return.
Interest can be paid in a variety of ways on a savings account, depending on the individual account and provider.
Savings interest can be paid daily, monthly, quarterly, yearly, on anniversary or on maturity, for example. Accounts may give you a choice of how you want your interest paid, while others will only offer one option. You can see how different accounts can pay interest on our charts.
There’s no limit to the number of savings accounts you can have. You may like to have a mixture of accounts, such as an easy access account for any emergency expenses and one or more fixed bonds for your longer-term savings.
The interest rate on a savings account tells you how much of a return you can get on your savings. To help you compare accounts, the interest rate is displayed as an annual equivalent rate (AER), which tells you how much you could earn over the course of one year including any compounding interest or bonuses, for example.
All savings providers should be regulated by the Financial Conduct Authority (FCA) and, under the Financial Services Compensation Scheme (FSCS), up to £85,000 of the money you have saved with a provider is protected if it goes bust. Bear in mind that if one or more providers share a banking licence, this limit applies to your total deposits with these providers.
Savings accounts and individual savings accounts (ISAs) are both places where you can build up your savings. The main difference between them is that any interest you earn on a savings account above your Personal Savings Allowance (PSA) is taxable, whereas any interest you earn on an ISA is completely tax-free. Read more on the differences between savings accounts and ISAs.
Yes, if you want to manage your savings via mobile, you can choose an account that allows you to do this. There are providers that operate solely via mobile app, while other providers may allow you to open and manage your account via a number of methods, including mobile, online and in branch.
When you compare savings accounts on our charts, you can see the different ways that you can open and manage each account.
It’s possible to open a savings account on behalf of someone else through a Power of Attorney. However, different providers have different rules and processes, so it’s worth researching your options if this is something you want to do.