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Savings accounts

FIND AN ACCOUNT THAT COULD HELP YOU SAVE MORE

  • Grow your money with high interest rate savings accounts
  • Compare different types of accounts to suit your needs

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What is a savings account?  

A savings account is a type of bank account where you put money that you don’t need to spend immediately. You deposit money with the bank and get paid interest in return for saving with them.

Savings accounts are simpler than current accounts, which are designed for everyday banking like paying bills. For example, you can’t have an overdraft with a savings account.

A savings account is there for you to put money away safely so it’s available when you need it. It can help you build up a lump sum, and earn you interest on money that you don’t need right now, for other things.

How do savings accounts work?

Savings accounts are offered by banks, building societies and credit unions, and they can also be offered by friendly societies and other financial institutions. Traditionally, banks use 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. What really makes a difference over time is the effect of compounding. This is when you earn interest on the interest that has already been added to the account.

The table below is for illustrative purposes only. You can see how the value of the savings deposited builds up over time.

In this example, you start with a deposit of £5,000 and don’t make any additional payments, but just leave the interest (at a rate of 2%) in the account. In year five, you’re earning roughly £100 more a year, thanks to interest on your interest:

Year Year’s interest (compounded monthly) Total interest Balance
Year 1 £100.92 £100.92 £5,100.92
Year 2 £102.96 £203.88 £5,203.88
Year 3 £105.07 £308.95 £5,308.95
Year 4 £107.12 £416.07 £5,416.07
Year 5 £109.32 £525.39 £5,525.39

What is the current Bank of England base rate?

In June 2024 the Bank of England held the base rate at 5.25%.

This is good news for savers, as higher interest rates mean better returns. However, experts predict that interest rates could begin to fall over the coming months.

What types of savings accounts are there? 

There are many different savings accounts out there. These are the main types: 

Easy-access savings accounts   

Easy-access accounts let you withdraw money when you need it, so they’re a good place to save for emergencies. But interest rates can be relatively low compared with other types of savings account.

Fixed-rate savings account  

If you can lock your money away for a set time, fixed-rate savings accounts, also known as fixed-rate bonds, give you the certainty of knowing how much interest you’ll get in total.

These accounts typically lock your money away for one to five years. If you need to access your money before the account matures, you might pay a penalty or lose any interest you’d earned.

Regular savings account  

Regular savings accounts have a high headline rate of interest, but you can’t deposit a lump sum, only small monthly amounts. This means you may not earn more money than if you place a lump sum in a lower-paying account.

For example, if you paid £250 a month into a regular savings account paying 7% interest, after a year you’d have £3,113 including £113 of interest. However, if you had deposited £3,000 as a lump sum into an account paying 5% interest, you’d earn £150 interest over 12 months.

But a regular savings account is a great way to start building a nest egg and getting into good savings habits.

Cash ISA  

With a Cash ISA, you don’t pay tax on any interest earned. There’s a limit on the amount you can pay in every year. 

Children’s savings accounts  

If you’re looking to give your child a head start for when they’re older, you can open a savings account for them. Currently, you can’t compare children’s savings accounts with us. 

Junior ISA

You can save for your child’s future in a Junior Individual Savings Account (JISA). They’re long-term, tax-free savings accounts for children.

Lifetime ISA

Designed for saving towards a home or for retirement, Lifetime ISAs are available for people aged 18-39.

Notice accounts 

A notice account is mix between an easy access and fixed-rate savings account. It allows you to access your money, but you’ll need to give notice before doing so. The notice period typically ranges from a week to six months.

Which type of savings account is best for me?

Only you can decide which account is best for you and your circumstances – and it may be you need more than one savings account. For example, you might need an account which you can take money out of quickly, as well as an account to put money away and save for your longer-term goals. 

Here are some questions you should ask yourself when considering which is the best savings account for you: 

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 saved, the higher the interest, so check out your options.

If you have more than £85,000 in savings and deposits, it could be worth splitting it between several accounts at different providers. That way you’ll be protected by the Financial Services Compensation Scheme (FSCS) if your bank goes bust.

Do you have a rainy day fund?

MoneyHelper (formerly the 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 this 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 whenever you want, but some may limit the total number of withdrawals you can make in a year, so always check first.

Can you put your cash away for longer?

Fixed-rate accounts could pay higher interest in return for keeping your money in an account for a set period of time.

You take a gamble with these accounts as you could miss out if interest rates rise while your money is locked away. But, if interest rates fall, you’ll have locked in at an attractive high rate.

Do you want to add to your savings every month?

Regular saver accounts are designed to let you save around £50 to £500 a month – the maximum you can save varies between providers. They can pay higher interest rates than other accounts and are a good way to get into the savings habit, but some only apply for a year. As you can only add a relatively small amount at a time, they might not earn as much as putting a larger lump sum in a lower-interest account.

Do you pay tax on your interest?

If you’re a basic rate taxpayer, your personal savings allowance (PSA) means you won’t pay tax on the first £1,000 of interest accumulated. For higher rate taxpayers, the allowance is £500, while additional rate taxpayers don’t get a PSA at all.

This doesn’t apply to the interest you earn on an ISA, which is totally tax-free. ISAs can therefore be a better option than ordinary savings accounts for anyone who expects to exceed their PSA.

Are you saving for a deposit as a first-time buyer?

One option is to open a lifetime ISA (LISA) to earn a 25% bonus on your savings if you’re a first-time buyer aged 18-39 inclusive. The annual LISA allowance is £4,000.

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 their first car, or even as a deposit on a home.

Is saving the best use of your money?

Would you actually be better off paying off your debts or overpaying your mortgage, than saving? Remember, interest rates on debts and mortgages are usually higher than what you can earn on your savings, so saving could represent a false economy.

Do you have a particular savings goal?

Are you saving for the holiday of a lifetime, a wedding, or a new car? You may want to separate these savings from other funds, to help you see how close you are to your specific 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 you could choose one of these.

If you want to be less hands-on, you may prefer to lock your money away for a fixed period. Just make a note in your diary to shift it when the account matures. If you put your money in any other savings account, check the rate every six months and compare accounts to see if you could earn more interest elsewhere.

Why compare savings accounts? 

When choosing a savings account, you want to get a good interest rate – along with the features you need to manage your finances. With so many providers out there, you have a lot of options to choose from to find the right savings account to suit your needs. 

At Compare the Market, we make it easy to compare savings account rates by gathering information from dozens of accounts in one place. You can see the rates available and key information at a glance  – including pros and cons, maximum and minimum balance, and the ways you can manage your account.

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Are savings accounts worth it?

Savings accounts can keep your money safe and secure while maximising your returns when interest rates are high. Savings accounts can also help you manage your money. Having different accounts for your savings enables you to separate the money you want to put aside. As it’s not in your current account, you won’t be so tempted to spend it.

Thinking about saving can also help you understand your finances, clarify your goals and get into good financial habits. However, if you have high-interest debts, you might be paying more in interest than you’d earn in savings, so it may be wise to pay these off first.

Of course, to make the most of savings, it’s important to look for the best rates available, with an account that suits how you want to access and run it. Saving regularly means that the money can mount up over time if you don’t dip into it. Over time, you’ll also benefit from compound interest, which means you’ll be earning interest on the interest paid into your account in earlier years.

Banks and building societies often offer a higher rate for regular savings, although there is often a limit to the amount you can put by every month.

Example of regular savings accounts

Interest rate gross: 2%

Rate fixed for the 12-month term 

How much should I be saving?

MoneyHelper advises making sure you have at least three months’ worth of essential outgoings in an emergency fund. You can get yourself into the savings habit by setting up a standing order or direct debit into a savings account.

It’s important to first work out how much money you can afford to save.
 
See where you could potentially spare up money. Start by regularly reviewing your bills. Make sure you’re not paying more than you need to for services like gas, electricity, phone, broadband and insurance. For example, you might be able to save £531[1] on your car insurance and £225[2] on home insurance by getting a better deal.
 
But before you start putting all your spare money into savings, think about your long-term plans and goals, particularly your pension.

As well as growing your savings, you may want to increase your pension contributions, or set up a pension if you don’t have one already. As with any financial investment, we’d always recommend seeking independent financial advice.

[1]
Based on Online independent research by Consumer Intelligence during June 2024, 51% of customers could achieve this saving on their car insurance through Compare the Market.

[2] Based on online independent research by Consumer Intelligence during June 2024, 51% of customers could achieve this saving on their Buildings and Contents insurance through Compare the Market.

Author image Sajni Shah

What our expert says...

“If you have a lot to save, it’s worth getting the most from your money by dividing your savings between different bank accounts and providers. Consider an easy-access savings account or a high interest current account for savings under £3,000, then a longer-term fixed rate account for the rest. If you’re happy to lock away a larger amount for a longer period, you’ll be able to benefit from a higher interest rate.”

- Sajni Shah, Consumer expert on money

What should I consider when comparing savings accounts?

  • Interest rate vs access – most easy-access accounts offer a lower interest rate than other savings accounts, while the higher-interest accounts typically have restrictions on when you can access your money.
  • Minimum and maximum deposit – some accounts can be opened with just £1, while others might need you to deposit much larger sums. Some savings accounts will also have a maximum balance. A number of accounts offer tiered rates of interest, so the amount of money you have in the account can affect your rate of interest.
  • Tax – an ISA can help you maximise your tax-free earnings.
  • Protection – make sure your savings are protected by the Financial Services Compensation Scheme (FSCS), so you know you'll get most of, or all of your money back, if the organisation fails.

If you only have a small amount to save, some current accounts will pay higher rates of interest on balances up to a certain level. These may be worth considering over savings accounts. But you’ll need to be disciplined and make sure you don’t spend the cash in your account. It might be worth opening a savings account, too.

Frequently asked questions

Who can open a savings account?

You’ll need to be a UK resident to open an ISA.

Other than that, it’s up to each account provider to set their own rules. You may have to be 16 or 18 for some types of account, and some banks might reserve their best-paying savings accounts for customers who have a current account with them.

Some small building societies may restrict their accounts to people who live in their area. For example, the Ipswich Building Society only offers its savings accounts to existing members or people who live in its local postcode areas.

Make sure you check the eligibility rules for any account you’re considering.

Can I open a joint savings account?

Yes, most savings accounts are also available as joint accounts, although some providers may require one of you to be an existing customer first.

You can’t, however, open a joint ISA. That’s because it’s an Individual Savings Account intended for one person only.

Can I have a savings account if I have bad credit?

A poor credit history shouldn’t be a barrier to opening a savings account. Most banks don’t carry out credit checks with this type of financial product because there’s no borrowing involved. So, bad credit shouldn’t affect your application.

How often is interest paid?

Interest is usually paid monthly or annually, depending on the savings account you have.

Do I have to pay tax on the interest my savings earn?

You won’t have to pay tax on interest for an ISA as it’s a tax-free account.

Interest from other types of savings accounts counts as income, and how much tax you pay depends on how much interest you earn.

Basic rate taxpayers have a personal savings allowance of £1,000, so most people won’t need to worry about paying tax on their interest. If you’re a higher-rate taxpayer, your personal allowance drops to £500, while additional rate taxpayers don’t get an allowance.

If you do go over, you’ll pay tax on any interest over your allowance at your usual rate of income tax. That’s 20% for basic taxpayers and 40% for higher-rate taxpayers.

How can I be sure my savings are safe?

If you’re covered by the Financial Services Compensation Scheme (FSCS), then deposits up to £85,000 are protected. But that limit applies to all your money held with that bank, so if you have several savings accounts with them or a current account too, your total balance will need to be below £85,000. If it’s a joint savings account, up to £170,000 is protected as the limit is per person.

I have debts. Should I pay those off before I start saving?

If you have outstanding credit card debts subject to high rates of interest, it might be advisable to pay those off first, before thinking about putting money away. That’s because you’ll almost certainly be paying a higher rate of interest on debts like loans and credit cards than you’ll be earning in savings interest. Once you’ve cleared your debts, you’ll have more money and can save faster.

If, on the other hand, you’re paying off your credit card in full every month and keeping up your mortgage payments for example, it might be a good time to start saving.

How does inflation affect my savings?

Everything you buy is influenced by inflation. If inflation rises, so will the cost of everyday goods – for example, groceries, fuel etc.

If your savings account interest rate is lower than the rate of inflation, you’ll be losing out because the money earned won’t buy you as much as it did a year ago.

If you want to make the most of your savings, make sure the interest rate you’re getting is higher than the rate of inflation.

What are introductory bonus rates?

Some savings accounts offer high interest rates as incentives for new customers. But once the introductory period is up, you could be left with an interest rate that’s much lower. It could be a good idea to stick around for the introductory rate, and then compare and switch again.

Always check the terms of the introductory rate, as breaking certain rules could mean you lose it – for example, if you withdraw money before the end of the introductory period.

Can I have more than one savings account?

Yes, you can have multiple savings accounts as long as you meet any requirements set by the account providers.

Can I take my money out of a savings account whenever I want?

Easy-access accounts allow you to take your money out whenever you want, although some may specify a maximum number of withdrawals a year.

Most fixed-term accounts will charge you a hefty penalty if you make a withdrawal before the end of the fixed period.

What is the best savings account for my children?

The best savings account for your children might depend on how old they are, and if you want them to have access to their savings. For example, with a Junior ISA, your children won’t be able to take any money out until they reach 18.

After a certain age, children can apply for a savings account themselves too. But under 16s may need a parent or guardian to go with them into a branch, so always check the details of the account.

How do I open a savings account?

This depends on the account you choose. Some accounts are opened and managed online or on the phone. Others require you to go into a branch or apply by post.

Use our comparison tool to easily see what you need to do, to open the account – it’ll be in the next steps box for each individual account.

What do you need to open a savings account?

Once you’re ready to apply for an account, you’ll need to have the basics to hand – your address, occupation and current bank details. You may need to prove your identity with a passport, driving licence or energy bill, particularly if you haven't banked with that provider before.

If you want to open an ISA, you’ll need your National Insurance number too.

How do I close a savings account?

This will depend on your account provider. You might be able to close some accounts online, while for others you might have to visit a branch. If you have a fixed-term savings product, you might not be allowed to close it before the end of the term. Or if you do, you may have to pay a significant penalty.

If you want to move your ISA to another provider, you’ll need to complete a transfer form. You shouldn’t close the account with the original provider without doing this, as you won’t be able to reinvest that part of your tax-free allowance again.

I already have a savings account. How often should I review it to see if it’s still right for me?

It’s a good idea to regularly compare the market to make sure your money is still in the best savings account for you. Interest rates can change, new accounts and even new banks become available, and your own personal circumstances might change, too.

Page last reviewed on 25 JUNE 2024
by Sajni Shah