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Find the right savings account for you

Explore the different types of account

Choosing the right type of savings account is almost as important as saving itself. Here are some types of savings accounts to help find one that works for you.

Let’s explore the range of savings accounts on the market

Different types of savings accounts meet different needs. As your savings build, you might consider using a combination of accounts to help you get the most from your money. It’s also worth thinking about your Personal Savings Allowance (PSA). If you’re a UK basic-rate taxpayer, your PSA gives you up to £1,000 of interest on your savings income tax-free. If you’re a higher rate taxpayer, up to £500 is tax-free but additional rate taxpayers don’t receive a PSA. Tax-free interest earned within an ISA does not count towards your PSA – you can read more about it here.

Instant-access savings accounts

These are typically the most flexible accounts out there because you can pay money in and make withdrawals whenever you like. You can also save very small amounts – you can open some accounts with an opening balance as little as £1.

These accounts can be useful if you don’t want to commit to a fixed regular savings amount or if you know you’ll need access to your money. They could be a good home for your emergency savings pot, which you never know when you might need to access. However, you may find their interest rates could be among the lowest offered by a bank or provider.

Regular savings accounts

These accounts ask you to commit to a regular standing order each month – sometimes offering an attractive interest rate for 12 months – making them helpful if you plan to save little and often as you build towards a goal, such as a new car or a holiday.

These accounts don’t usually let you pay in a lump sum and it’s also worth checking what happens to the interest rate after the end of the fixed period or if you withdraw during the month, as it can sometimes drop to around the same rate as an instant-access savings account.

Notice accounts

These accounts pay a higher rate of interest in exchange for restrictions to accessing your money. Some accounts ask you to give notice before withdrawing, eg 30 days, while others limit you to a certain number of withdrawals a year. If you need money faster, or more often, you may sacrifice some interest or pay a fee so it’s important to plan ahead and ensure this isn’t money you’ll need to access regularly. This type of account is more suitable for money you don’t think you’re going to need for a while and when you want to earn a higher rate.

Fixed rate bond

This is usually the least flexible account offered by a provider. In exchange for depositing a lump sum for a set period of time, you’ll be offered a fixed rate of interest which is usually higher than those offered by standard instant-access accounts.

You’re typically not able to pay more money in once the bond is open, and you may not be able to withdraw money from the bond until the end of the term. This could be six months, one year, two years or longer, but some providers do allow withdrawals and more access.

The interest rate is fixed on the day the bond opens, so you can work out how much your money will be worth at the end of the term. It’s important to plan ahead and make sure you have other emergency savings available, as you may not be able to access this money if you need it.

Children’s savings accounts

With this type of account, you can set aside money every month for children under the age of 16 – and have access to your savings if you need it.

You’ll need to be a parent or guardian over 18 to open it for your little one, but it’s a great way to start saving for their future. We have two types of savings accounts – Instant Saver and Regular Saver . Be sure to read through all of the interest rates to know which account is best for you and yours.

There are other bonds available, such as the Flexible bond. You can find out more about this here.

What about ISAs?

Standard savings accounts are good, but it’s also worth looking into Individual Savings Accounts (ISAs). With ISAs, any interest you earn is tax-free, which may allow your savings to grow quicker than in normal savings accounts. Let’s look into some ISAs on the market.

Cash ISAs

A cash ISA is similar to a normal savings account, except you can save more with the tax-free interest you earn. There’s a limit to how much you can save in your ISA each year– this is determined each tax year. For the tax year 2019/20, the interest-free allowance is £20,000. Providers offer instant access, variable cash ISAs and fixed rate cash ISAs, and you can only subscribe to one cash ISA per tax year. Find out more about cash ISAs, here.

Help to Buy: ISA

If you're saving towards your first home you could get there quicker with a Help to Buy: ISA. Not only will you benefit from tax-free interest, but you'll also earn a 25% government bonus towards your first home on amounts saved between £1,600 and £12,000. There are monthly limits on the amount you can pay into a Help to Buy: ISA. The first payment into your Help to Buy: ISA can be up to £1,200 and then you can pay in up to £200 per calendar month after that. You can find out more about Help to Buy: ISAs here.

Stock and share ISAs (Investment ISAs)

A stocks and shares ISA lets you invest your savings in the stock market through funds chosen by investment specialists without paying capital gains tax. The ISA maximum allowance of £20,000 for the 2019/20 tax year also applies to these products.

There are other types of stocks and shares ISAs, which you can find more about here. It's worth getting professional financial advice if you’re thinking about a stocks and shares ISA. Remember any investment can go down as well as up, so there’s the possibility of losing some of the money you invest.

Annual ISA allowance

The ISA allowance is reviewed every tax year, which runs from 6 April to 5 April. You can’t carry forward any unused allowance from one tax year to the next, but you can save up to your limit each year to maximise your savings. There’s more on that in our guide to ISAs.

You can open a cash ISA from the age of 16 or 18, depending on the type of ISA, as long as you’re a UK resident and, in most cases, have a permanent National Insurance number.

Savings account features explained

When deciding on a savings account you’ll often see the interest rate displayed prominently. While it’s important to get a good return for your money, there are other things to consider to make sure the account is right for you. Let’s take a look at some of the terminology.

What to check
Description
Opening balance

How much you need to open an account. This can range from £0 to over £1,000.

Regular payments

Some savings accounts require you to make a payment into the account every month . With others you can put a lump sum of money in and leave it for as long as you like.

Notice period – how quickly you can access your money

Many savings accounts are instant-access, meaning you can get hold of your money whenever you like. Some offer higher interest rates if you give 30 days’ or even 90 days’ notice before getting your money.

Number of withdrawals – how many times you can take money out each year

Some savings accounts limit the number of times or the amount of money you can take out each year. Usually the fewer withdrawals you’re allowed to make, the higher the interest rate.

How you access the account

It’s worth looking at whether you can access your account online, by phone or in a branch. If you like banking online or on your mobile phone, you may want a bank with a smartphone app, or use text messages to give you your balance – some banks even allow you to open and manage your account in your mobile banking.

Fixed or variable interest rate

Some savings accounts offer a fixed interest rate. These rates are often higher than a standard account with a variable interest rate, and you may need to pay in a larger sum when you open the account. You'll need to make a note of when the fixed rate expires, as the rate of interest could then drop to around the same as a standard instant-access account.

So now what?

Now you know what savings accounts are available and the type of saving they are best suited to, you can look further into the ones that interest you. Look closely at the interest rates and fixed terms to decide what’s best for what you want to save for. 

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