Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme (FSCS) up to a maximum level of protection of £85,000 per person per institution. All new savings or bank accounts provided to UK customers are now covered by the FSCS.Disclaimer
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A savings account is an account you put money into and in return the bank or building society will pay you interest. Savings accounts are different to bank accounts that offer additional services including direct debits, online payments, and debit cards.
There are lots of savings accounts available in the UK. Choosing the right savings account for you will depend on your personal circumstances and how you want to use the account. Here are 10 tips to help find the right savings account.
Find out more about how to manage your savings account including how you can pay money in, make withdrawals and close your accounts.
Depending on your needs, you might want to have more than one account to take advantage of all the different features on offer. You can choose from:
Fixed Rate Bonds require you to set your money aside for a set period of time - typically from one year up to seven or more. Usually you won't be allowed to add to your pot over that time (bar the occasional window on opening the account). You may be able to access your funds on a severe interest penalty, but many of these accounts will not allow any access at all until the full term of the bond is up. In exchange, they do tend to offer the highest available rates of all standard savings products.
Easy access savings accounts are the most flexible and simple of all savings accounts. They allow you to add money to your savings pot as and when you want to and offer quick withdrawals. Some easy access savings accounts restrict the number of withdrawals you can make each year, and if you need to exceed this may reduce your interest rate.
In many ways, notice accounts are a halfway house between easy access and fixed rate savings. They may allow unlimited additions, but withdrawals will usually require the stated notice period, which can range from 30 days to six months. Sometimes savers will even be able to get early access on the loss of a certain number of days' interest (usually equivalent to the notice period). As they live between easy access and fixed, the rates on offer also tend to sit between the two.
As the name suggests, monthly interest accounts pay out interest on a monthly basis. These accounts may require notice or could be easy access. They will likely offer saving rates that are less than those offered on annual interest-paying accounts.
Regular savings accounts tend to offer the highest rates, but also come with the most restrictions. They will have a time limit to them, as well as an upper investment limit, and they'll usually require a certain number of deposits per year. They tend to be ideal for those looking to save small amounts every month, to develop a savings habit or save up for a specific purchase.
Offshore savings accounts are specifically designed for expats or those who live beyond the UK mainland, typically in Guernsey, Jersey, the Isle of Man and Gibraltar. Such accounts are typically offered by the offshore arm of the UK’s largest banks and building societies, but bear in mind that funds held in such institutions will fall under the depositor protection scheme of the relevant jurisdiction, not the UK Financial Services Compensation Scheme.
Children’s savings accounts are aimed at the under 18s. These accounts can come with varying minimum and maximum ages. They may be managed by a parent or guardian on behalf of the child or the child may directly manage the account themselves. This will depend on the rules of the account set by the savings provider. Parents can also use a Junior ISA to save for their children tax-free up to set limits. Read more about to save money for your grandchildren.
Business savings accounts allow businesses of all shapes and sizes to deposit surplus cash. They are available as easy access, fixed rates and notice accounts.
The Bank of England base rate is currently at a historic low making high interest rates on savings very difficult to find. Two key events have crippled savings interest rates in recent memory, the financial crisis in 2008 and the first lockdown of the Coronavirus pandemic. Both events saw the base rate reduced and as a result savings rates followed. The hope is that the economy can return to a more normal position in the future and interest rates will then rise for savers.
Most UK adults will not pay tax on the interest they earn from savings accounts. The Personal Savings Allowance (PSA) gives you an allowance of interest you can earn before it incurs tax. This is based on your income tax band:
|Income tax band||Personal savings allowance|
|Basic rate taxpayer - 20%||Up to £1,000|
|Higher rate taxpayer - 40%||Up to £500|
|Taxpayer - 45%||£0|
Table1 - Personal Savings Allowances by Income Tax Band
Any interest earned above these personal savings allowances are taxed at the marginal rate applying to that person (20%, 40% or 45%). (Rates of tax in Scotland may differ.)
This means that if you earn interest above £1,000 (or £500), you'll need to declare it to HM Revenue & Customs. Cash ISAs, in contrast, are tax-free regardless of your tax status, so this is always a good first port of call for large savings pots or higher rate taxpayers.
Download TaxFacts to see tax bands and allowances across the UK or read more in our guides about how the PSA works and how savings are taxed.
Savings interest can be paid on the anniversary of your account, annually or quarterly on a specified date or monthly. You should also check if your interest is ‘paid away’ or compounded into your account. Savings interest that is paid away, means the interest must be paid into another account. Our savings charts show how the interest is paid and when you open a savings account you will be asked to nominate another account to pay the interest into, if this is required. If the interest is not paid away, then it is added to your account balance. If you are due to have interest added again in the future this interest will then be applied to your original balance, plus the first interest payment. This is called compound interest.
The Annual Equivalent Rate (AER) is designed to make savings accounts easier to compare. The AER assumes that you keep your money in a particular savings account for a year, while taking more factors into account than the gross rate, which means it can show a truer picture.
Our guide compares the different types of savings interest rates.
Generally, anyone can open a savings account, subject to proving their identity, but you will need to be a UK resident and be at least 16 for a cash ISA and over 18 for other savings accounts. Those younger than this can open specific childrens’ savings account either in their own name or via their legal guardians.
Different accounts will have a minimum and maximum amounts that you can deposit. Our savings charts show these values under Further Information for each account listing.
There is no limit to the number of savings accounts you can have, but there are restrictions for the number of open cash ISAs you can save into during any one tax year. It’s often sensible to have a mixture of accounts, for instance, you might want a fixed rate bond for your longer-term savings, an easy access account for your emergency pot, and a regular saver to save up for your next holiday.
Grandparents can open savings accounts in trust for their grandchildren or open a children’s savings account in the name of their grandchild/ren and contribute to this. Grandparents can also contribute tax-free up to £9,000 each tax year into a Junior ISA, but this has to be set up initially by the child’s parents or legal guardian.
Knowing how an investment is being used can be very important to many savers. For instance, you might not be happy knowing that your savings are being used to help finance industries that have an adverse effect on the environment. Or you may not want your money lent to the producers of weapons, or to bankroll a gambling business.
There is a small minority of truly ethical banks and building societies in the UK that offer such transparency and ethical lending commitments. They are Charity Bank, The Co-operative Bank, Ecology Building Society and Triodos Bank.
However, it’s worth pointing out that Sharia’a compliant accounts also tend to operate under ethical principles, with the money held never being used to fund businesses that engage in unethical activities.
It is generally the case that you don't earn as much interest in an ethical savings account as in a non-ethical alternative – the exception being with Sharia’a compliant accounts, which often boast the top (or near-top) rates for their terms – but what you do get is peace of mind that every penny of interest you receive has been earned ethically.
If you have more than £100,000 to put into a savings account, you should be aware, first of all, that you will likely have to pay tax on the interest that you get, as you would breach your personal savings allowance with a rate as low as 1%. To that end, the best savings vehicle for you might be an ISA, where you'll be able to enjoy the build-up of your interest without worrying about tax.
However, ISAs will only allow you to put in a certain amount per year (£20,000 for the 2021/2022 tax year), so you'd still have £80,000 to stash away. With this, you might want to put £20,000 aside for the short term, to be put into a new ISA or added to an existing one the following year, keep some of the rest in an easy access account, and put the remainder in a longer-term bond or even invest it on the stock market depending on your objectives and attitude to investment risk.
Depending on the savings rates at the time, there's no guarantee that you won't have to pay some tax on your interest, but the amount of interest you get may just outweigh the tax you'd have to pay – seek professional advice if you're not sure.
While there are a few savings accounts available that are exclusively for people over the age of 50, or even 60, these won't necessarily offer the best savings account rates. Instead, it’s often best to tailor your savings search according to your financial needs, regardless of your age – you’ll want to make sure any potential account can be managed in the way that you are most comfortable with and that it allows the level of access you desire, and of course make sure you’re getting the best savings rate to go with it.
You can claim benefits if you are saving, but many are means tested and may reduce or not pay you at all if you have a certain amount in your savings account. You and your partner (if below state pension age) can have up to £6,000 before this impacts your benefits payments. This increases to £10,000 for those who are state pensioners. Those with savings above £16,000 will not receive any means tested benefits. Anything between £6,000 to £16,000 will see your benefits reduced by a set amount. Means tested benefits include Income-based Job Seekers Allowance, Employment and Support Allowance, Universal Credit, Pension Credit, Housing Benefit and Income Support.
Inflation, which measures the increased price of goods and services, affects the cost of everything you buy. As inflation rises, so does the price of your groceries, fuel etc. Because of this, you'll ideally want an interest rate that is above the rate of inflation, so your money doesn't lose its spending power.
When inflation is greater than the average interest rate, or (in the worst case) all savings rates fall short of the Consumer Price Index - the most commonly used measure of inflation - you will essentially be getting a negative return. That's why it's always a good idea to make sure your savings interest rate is higher than the rate of inflation, if possible.
There is no credit check to pass when opening a savings account. You will need to prove your identity and be clear on the source of our funds.
Savings accounts can be opened in branch, by phone, online and by app. The choice available will depend on the savings provider. You will need to be able to meet the identification requirements of the bank or building society. This may include an electronic check on your identity or sending them hard copies of relevant documents.
The Money Advice Service suggests you aim for three times the amount you spend on essential items each month. Examples of essential expenditure include your mortgage or rent, food shopping, heating, internet, utility bills and insurances. This will help you to set up an emergency savings fund. This pot of money is then available for when something needs repairing or replacing unexpectedly or in case of losing your job. You may also want to save for a specific item, such as a new car, home improvements or a holiday. In this case you need to identify how much you are looking to spend, when you want to have this by and find out how much you will need each month. You should then compare this with the spare cash you have available. Make sure you are careful not to build up any debts while trying to save.
The Government also offers savings schemes to encourage more people to save.
Those aged between 18 and 39 can save up to £4,000 tax-free in a Lifetime ISA. The Government pays a 25% bonus on top of what you save. This means a bonus of £1,000 for every £4,000 saved and that’s before you add any interest. The money can only be used for a house purchase or for your retirement and there are strict penalties for early withdrawals for any other purpose.
Those receiving Working Tax Credit, Child Tax Credit or Universal Credit with over £604.56 from paid work each month can apply for Help to Save account. You can save from £1 to £50 each month and will receive 50p for every £1 saved up to a maximum of £1,200 over four years. You receive a bonus payment from the Government at the end of years two and four.
Every basic rate taxpayer in the UK currently has a Personal Savings Allowance (PSA) of £1,000.
How are my savings taxed?
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