Compare savings accounts

Savings accounts

Times are hard for savers and have been since the financial crisis in 2008, with historically low interest rates. Ideally you want to make sure you get the best rates you can, with an account that suits how you want to access and run it.

It’s estimated that 11.5 million UK adults have less than £100 in savings, according to the UK Strategy for Financial Wellbeing 2020-2030 report published by the Money and Pensions Service in January 2020, while nine million people borrow money to pay their monthly bills. But it’s not all bad news. 

The same report has set a target of creating a ‘Nation of Savers’, increasing the number of monthly savers from 14.7m to 16.7m by 2030. If you’re someone who’s already saving, or looking to take greater control of their financial future, you’ll want to be clever with your money by putting it in the right savings account. Here’s our guide on how to avoid pitfalls and compare savings account rates.

Regular savings account  (You currently can't compare these with us) 

If you really want to get into the savings habit, this kind of account means you save the same amount of money every month. There are usually rules about how much you can put in and take out. They generally pay a slightly higher rate of interest. 

• Save a set amount each month. 
• Interest rates are usually higher than for instant access accounts. 
• Typically, interest depends on you keeping up regular payments. 
• Good for building up a savings pot. 
• Access varies. 
• Interest taxed after personal savings allowance. 

Junior ISA  

Junior Individual Savings Accounts (JISA) are long-term, tax-free savings accounts for children. They are set up by parents or guardians who manage the account until the child turns 16, but the money belongs to the child. You currently can't compare these with us. 

• You can pay in up to the child’s ISA limit per year (£9,000 for the 2020-2021 tax year). 
• There’s no tax to pay on any interest earned. 
• The money belongs to the child. 
• They can only access the money when they turn 18. 
• Good for saving for your child’s future.  

How do savings accounts work? 

Traditionally, banks have used the money they hold as savings to lend to other people. They make a profit on the difference between what they charge for the loan, and what they pay you in interest.  
 
Interest is what you pay for borrowing money, and what banks pay you for saving with them. For example, if you choose an account that pays 2% interest and you deposit £1,000 for a year, at the end of the year you will have £1020.18 – your original deposit of £1,000 plus £20.18 in interest. If the interest was only 0.1%, you would only earn £1 on your money. That’s why it’s important to find the best rate of interest for a savings account that suits your needs. 

What really makes a difference over time is the effect of compounding. This is when you earn interest on the interest that has been added to the account.  

Take a look at our example below. You can see how the value of the savings deposited builds up over time. In the example, you start with a deposit of £5,000 and don’t make any additional payments, but just leave the interest in the account. In year 25, you’re earning roughly £60 more a year, thanks to interest on your interest: 

Banks can afford to pay interest because typically they charge higher rates to borrowers, than they pay to savers. If a bank charged the customer 5% interest to borrow the £100, the bank would earn £5, then pay part of that profit as interest to savers in return. Compounding also explains why, if you have a loan or debt, the longer you take to pay it off, the more you will pay in interest.

Savings accounts are offered by banks, building societies and credit unions, and can also be offered by friendly societies and other financial institutions.

Which type of savings account is best for me? 

Only you can decide what account is best for you and your circumstances, but here are some of the main things you should consider when making your decision. It may be you need more than one savings account. For example, you might need an account where you can keep money to access quickly, plus an account to save money for your longer-term goals.  

Here are some questions you should ask yourself when considering a new savings account, says Anelda Knoesen from the Compare the Market money team. 

• How much money do you have to save? Some accounts pay different rates of interest depending on how much you save. Usually, the more you have, the higher the interest, so check out your options. But be aware of the £85,000 compensation limit mentioned earlier. If you have more than this in savings, you may want to spread your money around. See more on keeping your savings safe. 
• Do you have a rainy day fund? The independent Money Advice Service says a good rule of thumb is to have around three months of ‘essential outgoings’ in an instant access savings account. Think about how much you spend every month on mortgage or rent, bills, food and other essentials, then multiply that by three. You should put your emergency fund money in an account where you can get hold of it quickly when you need it. 
• Do you need access to your money? For the most part, easy access accounts let you make withdrawals when you want, but some may limit the total number of withdrawals you can make in a year. They tend to pay lower interest rates than other types of savings accounts. 
• Can you put your cash away for longer? Fixed-rate accounts can pay higher interest in return for keeping your money in an account for a set period of time. If you take your money out sooner, there can be high penalties and you could miss out if interest rates rise during the savings term. You can save regularly into other kinds of accounts too, so weigh up your options. 
• Do you want to add to your savings every month? Regular saver accounts are designed to let you save around £200 to £500 a month. The maximum you can save varies between providers. They can pay higher rates of interest than regular accounts, but some only apply for a year and then you have to move your money elsewhere. Others will let you continue to build your funds. 
• Do you pay tax on your interest? You never have to pay interest on savings in a cash ISA, so if you don’t have one it’s worth considering. 
• Are you saving for a deposit as a first-time buyer? Consider opening a Lifetime ISA to earn a 25% bonus on your savings if you are a first-time buyer aged 18-39. You can’t use these savings for anything other than buying a house or for retirement at 60+ without paying a 25% withdrawal penalty. 
• Do you want to save for your kids? If you have children under 18 you can save money for them. For example, with a junior ISA you can lock money away until they are 18 which they could then use to help pay for university, or as a deposit for a home. 
• Is saving the best use of your money? Would you be better off paying off your debts or overpaying your mortgage? Remember, interest rates on debts and mortgages are usually higher than what you can earn on your savings. 
• Do you have a particular savings goal? Are you saving for the holiday of a lifetime, a wedding, a deposit or a new car? You may want to separate these savings from other savings to help you see how close you are to your specific saving goal. 
• How hands-on do you want to be? Some providers tempt savers in with a high bonus rate for a fixed period, which then drops significantly. If you’re confident that you’ll remember to switch accounts when the bonus rate falls, then choose one of these. If you don’t have time to keep switching, you may be better off choosing an account that offers a stable, decent rate of interest.