A savings account is a place to put your money and earn some interest (this is what a bank pays you for storing your money with them). Most people can earn some interest from their savings without paying tax on it. Your ‘Personal Allowance’ is the amount of savings interest you can earn before paying tax, and this will vary depending on your other income. The Gov.uk website contains lots of guidance on this.
Putting aside some savings is a great way to create a safety net for both planned and unplanned future expenses. It can help you feel more secure in your everyday life and reduce stress if any emergencies come up, like a broken boiler or car repair.
Read about the different types of savings accounts and their benefits, so you can pick the right one to grow your money.
Types of savings accounts
Fixed rate accounts
If you don’t need access to your cash for at least a year, and want to benefit from higher interest rates that are fixed and won’t change, a fixed rate account could be right for you.
Easy access accounts
If you need to be able to get your hands on your money, an easy access account could be a good choice as it allows you to withdraw your savings without a notice period. Do be aware though, this type of account does tend to pay lower interest rates than other types of savings account – so make sure you shop around and do your research.
Cash ISAs
Cash ISAs are a popular choice for many - as you don’t pay tax on the interest you earn from your money. Your Cash ISA interest also doesn’t count towards your Personal Savings Allowance. Every tax year (6 April to 5 April) you can save up to £20,000 in one ISA account or split the allowance across multiple accounts, including other types of ISAs, not just cash.
Notice accounts
Notice accounts can sometimes offer higher interest rates than easy access accounts, but you need to give notice before withdrawing your money. Common notice periods can vary from 30, 60 or 90 days.
Choosing who to save with
UK regulated banks
Look for banks and building societies that are fully UK-regulated, as your savings will be protected up to £85,000 per person by the Financial Services Compensation Scheme (FSCS) if the bank was to go out of business.
An account that suits you
Banks and building societies will offer a range of different savings accounts. Think about which type of account you’d prefer, then find out who offers the best version of that account for you.
Good interest rates
Do your research on which banks offer the best interest rates, so you can earn the most from your money. It’s also a good idea to look at how interest is paid, whether monthly or annually. Monthly interest payments are good if you need to take interest out more regularly to spend it, whereas annual interest can build up over the year and result in a lump sum at the end of your term.
Minimum deposits and maximum limits
Always look at the minimum deposit needed to open a savings account. It could be anything from £1 and sometimes up to £1,000 or higher. Some accounts like Cash ISAs have a maximum saving limit of £20,000 per year (accurate as at September 2024).