Savings Accounts

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What is a savings account?

A savings account helps you grow your money, by offering you interest on your savings. This can be at a bank, but could also be situated at another financial institution.

How do saving accounts work?

Each savings account has a separate interest rate that will dictate how much money you earn over time. You may also be limited in the number of withdrawals you are able to make annually. They may also charge fees if you don’t keep a certain average in the balance account.

Will I be charged tax on a savings account?

Thanks to government legislation you have a personal savings allowance that allows you to earn a set amount of interest before you have to start paying tax, the bands are as follows: Basic rate taxpayers (those who pay 20% tax) can earn £1,000 worth of interest before paying tax. Higher rate taxpayers (those who pay 40% tax) can earn £500 worth of interest before paying tax. Additional rate taxpayers (those who pay 45% tax) do not qualify for a personal savings allowance.

Is there an age limit on a savings account?

For most savings accounts you do need to be over the age of 16. However, there are certain savings accounts specifically designed for children that can offer a fantastic introduction to savings at a younger age.

What types of savings accounts are available to people in the UK?

Instant account: This type of savings account allows you take money out whenever you feel the need. Notice Account: With this form of account customers have to give a notice period before they are able to withdraw money. This is generally a period of 60 days, although you are able to take money out if you pay an interest penalty – essentially a small fine. With these sorts of accounts, you can deposit funds whenever you want. Regular saver: This option demands that you save a certain amount every month. Fixed bond: With fixed bond saving accounts customers generally put in a set amount of money which is then locked in for a certain period of time, often 12 months for example. The interest rate on this is then fixed for that period.

What should I consider when choosing a savings account?

Any savings account you choose should be protected under the government’s Financial Services Compensation Scheme (FSCS.) Under this, your money is protected up to £85,000 which means that even if the bank collapsed you would receive this money back. This means that if you do want to save a sum of money higher than this amount it might be worth spreading it over a number of savings accounts, just to be safe.

What should I consider when opening a savings account for a child?

Any child is entitled to a tax-free savings account so it may well be worth putting their savings in a specifically named account to help boost the rate of interest.

Why would I want to save?

People have many different reasons for saving money whether these fall under short term or long term goals. In the short term, individuals may look to save for events or items like a car, a new kitchen, or perhaps for a memory such as a family holiday or a wedding. That being said, having savings in the short term may well be extremely beneficial as you really do never know when extra money might come in handy if, say, an item breaks or gets lost. Similarly, the desire to save in the long term can be far-reaching. Certainly someone may wish to save for the financial future of their children to help them pay for University fees or to help them get their foot on the property ladder.

What are the advantages of a saving account?

It offers a far more liquid way of investing your funds, meaning you can withdraw in an emergency if you need to do so. Most saving accounts cost nothing to open. There is no lock-in period which means you can switch savings accounts if you find a more preferable interest rate.

What are the disadvantages of a saving account?

Interest rates are often lower when compared to their alternatives such as Treasury bills or certificates of deposit. Given how easy it is to access funds, it can be tempting to withdraw money from the account. A number of savings accounts demand a minimum account balance in order to qualify for any interest rate, and if the account falls below that amount you will have to pay a maintenance fee.

How much money should you have in a savings account?

Generally, it is recommended that you are able to access enough money to cover you for three-six months in case you are made redundant or lost your job. Keeping this money in a savings account can be beneficial as it means, in a worst case scenario, you can access it.

Is it better to pay off debts or save?

All things equal, it is generally advisable to pay off your debts before you start saving. This is often because debt has a far higher rate of interest than savings, which means that debt costs more than savings earn. If you are able to get rid of your debts, you are in a far better position in the long-term. However, there are a few exceptions to this rule: The penalty exception: If paying off your debt would force you to accrue a penalty (most commonly seen with mortgages), then it is better to invest your cash in a savings account. Very low-interest debts: Some debts may well offer very low (or even no interest) rates for the first few years. In this case, it may be worthwhile investing the money until the interest rates spike.

What does the latest technology have to offer?

With the financial sector constantly being impacted by technology, in essence creating an entirely new phenomenon: FinTech. Unsurprisingly, this is also something that has affected the savings space which has recently seen the release of some fantastically innovative new Apps that make the entire savings process far easier and more seamless. uses cookies to offer you the best experience online. By continuing to use our website, you agree to the use of cookies. If you would like to know more about cookies and how to manage them please view our privacy & cookie policy.

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