Finance experts often recommend that consumers have between three and six months of outgoings saved in case of a sudden emergency. For many savers, however, the financial hardship of the last 12 months will have depleted their savings, while for others the pandemic has been a wake-up call to the importance of having savings to fall back on during uncertain times.
Starting a savings fund, or rebuilding savings, can be challenging but choosing the right account will help to make savings easier. For those lucky enough to have £1,000 to deposit, we’ve highlighted some of the best accounts available in which to deposit the funds.
For those who want to start a savings fund, depositing the £1,000 into an account that allows further additions may be the best option. Often easy access savings accounts are a good choice as they allow both further additions and easy withdrawals from the account. Saying this, savers should be aware that many of the top-paying easy access accounts have withdrawal restrictions, such as limiting the number of withdrawals that can be made, so it is important to be aware of these before opening the account.
The top rate in the easy access savings account chart on accounts available to new customers is 0.50% AER. Atom Bank offers this rate on its Instant Saver, which allows unlimited further additions and withdrawals, but is only available via mobile app. Both ICICI Bank UK and Virgin Money pay 0.50% AER on their respective accounts SuperSaver Savings Account and Club M Saver, but both these accounts require linked products to be opened in order to open the accounts. Unlimited further additions are allowed on these accounts and, although withdrawals can be made, they must be made via the linked products.
The best-paying easy access savings account available to new customers, which does not require a linked product or specific app to open and which allows unlimited withdrawals is Hampshire Trust Bank’s Online Easy Access Account (Issue 3). This account requires a £1,000 minimum deposit to open and allows further additions. Although withdrawals are unlimited they must be made via a nominated account. Those interested in this account can find out more information or open it online here.
Find out more and compare the best easy access savings deals.
An alternative option to easy access savings accounts is a notice account. Like easy access savings accounts, many notice accounts allow further additions. The main difference between these types of accounts is that notice accounts require a notice period before funds are withdrawn. In return, savers can often get a higher rate on notice accounts compared to easy access savings account. The main drawback with a notice account is that, like easy access savings accounts, the interest rate is variable, which means that the provider can reduce the rate at any time. Usually, the provider will give notice that they are planning to reduce rates, but It’s important that savers then give the appropriate notice to ensure they are able to move their savings into a higher paying account without penalty once the rate drops.
The top-paying notice account that is available to new customers is Allica Bank’s 95-Day Notice Personal Savings Account (Issue 1). This account requires a £1,000 minimum deposit to open and allows further additions. Withdrawals can be made subject to 95 days’ notice. More information about this account and all the notice accounts currently available can be found on our notice account chart.
Usually, the best savings rates can be found in the fixed rate bond charts. Fixed rate bonds are savings accounts that fix the interest rate for the term of the account. In normal times, the high rates offered on long-term fixed rate bonds results in them being a popular option with savers happy to lock their money into an account and let their savings grow through interest. In the current environment, however with interest rates low and some experts predicting that inflation will rise in the coming months, savings deposited into a long-term fixed rate bond could erode in real terms as inflation impacts the deposit.
As well as this a fixed rate bond does not normally allow further additions to be added, which means it is not a good option for those starting to save and who want to build up their savings. In addition to this, these accounts often do not allow withdrawals to be made so, again, may not be a good option for new savers who may need to access their savings regularly.
Savings are taxable, but the personal savings allowance combined with low interest rates, means that many savers will not need to worry about paying tax on their savings. For those concerned about paying tax on their savings an ISA, which allows up to £20,000 to be deposited tax-free in the 2021/22 tax year, could be a good option.
There are ISA versions of the three accounts highlighted above known as instant access ISAs, notice ISAs and fixed rate ISAs.
For those with £1,000 to deposit and who are looking to build up a savings fund, an easy access ISA account may be the best option as, like easy access savings accounts, they usually allow both further additions and withdrawals. The top-paying instant access ISA available to new customers is Cynergy Bank’s Online ISA (Issue 12), which pays 0.46% AER and allows unlimited further additions and withdrawals. Savers should be aware that a Cynergy Bank Authenicator App or Digipass is needed to use online banking with this ISA.
A much riskier option than savings accounts and which is more suited to those looking to save for the long-term – for example five years or more – and who already have three to six months of outgoings saved is a stocks and shares ISA. Unlike savings accounts, stocks and shares ISAs do not guarantee a return on investment and, in some cases, can result in investors losing some or all their money including their initial deposit. In return for the greater risk, however, this option can result in a higher return on investment than saving accounts can offer. Again, as an ISA, up to £20,000 can be deposited into a stocks and shares ISA tax-free for the 2021/22 tax year.
Many stocks and shares ISAs can be set up with an initial investment of £1,000 or less. Some require a small minimum monthly investment, for example £25. Due to the risks involved with investing in stocks and shares ISAs, it is often advisable to speak to an independent financial advisor first to ensure it is the right option.
More information about stocks and shares ISAs, as well as how to get started can be found on our stocks and shares ISA page.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.