What type of savings account do I need? | moneyfacts.co.uk

nigel woollsey

Nigel Woollsey

Online Writer
Published: 07/12/2018

At a glance

  • There is a wide range of traditional savings and ISA accounts available.
  • Different types of savings accounts suit different saving requirements and circumstances.
  • Some saving accounts require savers to lock their money into the account for a specific time period while others are more flexible in granting savers access to their money.

Find the right account for your saving needs

With so many types of savings account out there, it can be difficult to know what would suit you best. That’s why we’ve made this easy guide to help you understand what each type of savings account is, their pros and cons, as well as who they may be suitable for.

First, let’s start off by answering just seven simple questions. Each question gives a suggestion as to which savings accounts may be right for you. A full description of each type of savings account can be found in the table below these questions.

Take a look at all the questions and then find out more about which accounts may be best for you.

1: Do you want quick access to your savings?

YES – If you don’t like the idea of your savings being tied up somewhere meaning you can’t get your hands on your money, then an easy access savings account could be the one for you. These permit instant access to your savings, allowing you to withdraw or transfer as much or as little as you need to. Be careful though, as some easy access accounts will limit how many transactions you can make. See our quick easy access savings account explanation below to find out more.

NO – If you don’t need instant access to your savings, then a fixed rate bond or notice account could be the answer. Although most of these limit your ability to withdraw funds from them, they often pay a better rate of interest (or expected profit rate if you choose a Sharia ‘a-compliant savings account). Look at our fixed rate bond and notice account explanations below to see if these are a good match for your needs.

2: Do you want to save a regular amount?

YESRegular savings accounts often provide you with a better rate of interest or expected profit rate. Usually there will be a maximum amount that you can put away every month and a minimum number of payments that must be made. Generally, these accounts don’t allow penalty-free withdrawals until after a year from the date of opening. See our regular saving accounts explanation below for more info.

NO – If you don’t feel you can commit to saving a fixed amount every month, then you may find that an easy access savings account is better for you. On the other hand, if you are not worried about instant access, then payments into a notice account might be better.

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3: Are you looking to deposit a cash lump sum?

YES – Depending on what kind of access you need to your lump sum, there are several different accounts that could be for you. Easy access savings accounts are simplest, allowing for instant access to your money when you need it. However, they tend to pay less interest than other types of savings account.

A fixed rate bond is a great place to invest a lump sum if you are looking for a better return on your savings. There’s a wide choice of terms available, meaning you can lock your money away for periods of as little as six months to as much as 7 years. However, withdrawals during this fixed period tend to be very limited or often not permitted at all, and if you must access your funds before the maturity date you will pay an interest penalty.

Notice accounts can be a good half-way house if you have a lump sum to invest. Firstly, they tend to offer a decent rate of interest when compared to easy access savings accounts. Secondly, you will normally be able to withdraw funds by giving a set period of notice – usually between 14 to 185 days. If you don’t give this required notice, you may incur a penalty involving the loss of some interest.

For those looking to reap a regular income from their savings could consider savings accounts that pay monthly interest. Easy access notice and fixed rate savings accounts may offer monthly interest as an option. We’ve collated those accounts paying monthly interest into a single monthly interest comparison chart .

NO – However much you have to save there should be a savings account available. Easy access accounts often have the lowest minimum balances required, sometimes from as little as £1. Notice accounts and fixed rate bonds usually have higher minimum balance requirements, often from £500 upwards. You can see the minimum balance on our charts under the further details tab.

4: Do you expect to earn more in interest than your personal savings allowance?

YES – Cash ISAs (or Individual Savings Accounts) are tax-free savings accounts available to UK residents over the age of 16. It’s also possible to transfer an existing ISA to another provider so you don’t lose its tax-free status. Find out more about your ISA allowance with our 2020-21 ISA allowance guide. You may also find our personal savings allowance guide helpful.   

NO – Although there’s nothing to stop you taking out an ISA, you may find another type of savings account could pay you a better rate of interest and provide other benefits . You may also find our guide to fixed rate bonds vs ISAs helpful.

5: Are you looking to open a savings account for a child or young person?

YES – There’s quite a range of children’s savings accounts out there to choose from. Often, they benefit from a good rate of interest and come with a variety of options on how quickly the funds may be accessed, much like adult savings accounts. Access is often instant, but there are accounts that offer better rates for limited availability. Don’t forget that there are special Junior ISAs (JISAs), which offer tax-free savings for larger sums. Look below for a full explanation on both children’s savings accounts and JISAs.

NO – If you are over 18 then the full range of adult savings accounts are available for you to choose from. Cash ISAs can be opened by anyone over the age of 16.

6: Are you happy to risk your funds on the stock market for the possibility of greater returns?

YES – If you are happy to accept greater risk, then a stocks and shares ISA might be for you. This type of ISA does not have a guaranteed return in the way that a cash ISA does. Instead, the money is used to invest in selected stocks and shares that – if they do well – can result in greater returns than those offered on ordinary cash ISA. However, there is investment risk involved so you may also lose value from your savings.

NO – If the idea of more risk isn’t your cup of tea then you should stay with a cash ISA or a similar bank account that offers a fixed rate.

7. Are you saving to buy a new home?

Lifetime ISAs are a specific product aimed at those who are saving for a deposit on a new home or for retirement. Lifetime ISAs are not included here as they have highly specific requirements and restrictions. See the Lifetime ISA page for more information.

Moneyfacts tip

Moneyfacts tip nigel woollsey

Each savings account will have its own rules and conditions. You should carefully read and understand the terms of any account before you apply.

Savings accounts overview

Easy access savings accounts
A great, basic savings account. You’ll earn a little interest and be able to get at your savings when you need to. Find out more and compare easy access savings accounts.

 

Notice savings accounts
Typically pays better rates of interest than easy access accounts, but you must give a set amount of notice if you want to withdraw your funds, or usually you will incur a loss of interest. See more info and compare notice savings accounts.

 

Fixed rate bonds
Often, these accounts pay some of the best interest rates in return for locking your money away for a set period – normally between six months up to five years or more. Check out further details and compare fixed rate bond savings accounts.

 

Regular savings accounts
Can you commit to saving a regular amount each month for a set period? Find out more and compare regular savings accounts.

 

Monthly interest savings accounts
If you have a large lump sum that you’d like to earn an income from, then a monthly interest account could be for you. See details and compare monthly savings accounts

 

ISAs
ISAs are great for anyone who is worried about paying tax if their savings interest exceeds their personal allowance. Check the various types on offer and compare ISAs.

 

Other savings account considerations

If more than one of these account types appeal to you, don’t worry; it’s usually a good idea to have more than one type of account as you work towards varying financial goals. Do note that you can only open one new cash ISA per tax year and there are limits to how much you can invest.

An important point to remember is that the Financial Services Compensation Scheme (FCSC) limit for each banking group is £85,000. Hence if you have more than this sum invested with just one banking group, then the Government will only guarantee the first £85,000 if the bank fails or goes bankrupt.

If you are on this position, you could consider spreading your savings accounts out over two or more banking groups to ensure that none of these exceed the £85,000 FCSC limit.

 

Disclaimer: 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.

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At a glance

  • There is a wide range of traditional savings and ISA accounts available.
  • Different types of savings accounts suit different saving requirements and circumstances.
  • Some saving accounts require savers to lock their money into the account for a specific time period while others are more flexible in granting savers access to their money.

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