Your money should be working for you in a savings account
In this Guide
It’s rarely a bad idea to start saving your money. However, to invest your funds effectively, you need to do plenty of research. There are many options available to the average saver, in terms of both types of account and institutions offering them. You want to make sure you choose the right ones for you.
People will often put off their savings because of the many questions and uncertainties they have. In this guide, we take a look at everything you need to know about choosing the best bank account for savings. This includes answers to some essential questions, as well as examples of the best savings accounts out there.
What is a Savings Account?
As the name suggests, a savings account is a bank account where you can put money aside. The usual reason to do so is to gain interest on that money and increase its value. Most major banks, as well as building societies and other institutions, offer a range of savings accounts. There are various types, as we’ll see, and some have more benefits or restrictions than others.
As the name suggests, a savings account is a bank account where you can put money aside.
Each account has an interest rate which determines how much money you’ll make on your account balance over the course of a year. This interest is usually paid monthly or annually depending on the bank and type of financial product.
There are several different types of savings accounts on offer. Below are listed some of the most common ones:
This is one of the most appealing accounts for those who don’t have a large sum to deposit. Instead, you’re required to invest a certain amount each month. It’s a great way to watch your money grow.
Another popular type, this account lets you add and withdraw money at any time. There are few limits, but the interest may be lower.
With this account, you deposit your money and leave it for a fixed term. Interest rates are often set for the duration.
With these types of savings, you have to notify the bank or building society of your intent to withdraw your money. If you do not, you will take a hit to your interest rate.
Why Should You Get a Savings Account?
Opening a savings account is a great way to start taking financial responsibility. Setting aside a certain amount each month gives you the opportunity to grow your money and build for the future. Whether you’re just starting out with a new job, or saving for a new child, there’s rarely a wrong time to start saving. Not only is your money safe in the bank, but you will also receive interest on it.
Setting aside a certain amount each month gives you the opportunity to grow your money and build for the future.
Some accounts for savings require you to deposit a set amount in order to open one. However, often, you can get started with as little as £1. Generally speaking, the higher the initial deposit, the more interest you’ll receive on your money.
Of course, it’s not always the right financial move to tie up your money. If you currently have debts that you’re paying interest on, you should focus on paying those off first. Quite often, the interest on the debt will be higher than the amount you’ll get on your savings. Make sure that you weigh up your options before committing your money.
What Makes the Right Savings Account for You?
Choosing the right account for your money depends a great deal on your current financial status. For example, if your cash flow is limited or you’ll have some significant expenses coming up, you’re unlikely to want to open a fixed bond or notice account. Instead, you may prefer to choose an option that allows you to make small deposits on a regular basis.
If you’re looking to get a high rate of interest, you’ll want to shop around. You should be able to find an account or institution that offers you a balance of accessibility and potential for growth. Many institutions will offer bonus incentives for the initial period after you open an account. Pay attention to how long these last, and whether other banks offer better deals in the long-term.
Is My Money Safe?
The short answer is yes. The Financial Services Compensation Scheme (FSCS) ensures that cash placed into a UK bank or building society is protected. There are some caveats. For example, you are only assured for the first £85,000 you save with one banking group. This number increases to £170,000 if you’re investing in a joint account.
Due to the cap on the amount you’re protected on, it’s advisable to spread your money around. You can open multiple accounts with different providers. However, just make sure that the financial institutions you invest with are from different authorised firms.
Will I have to Pay Tax?
There are some good incentives to get investors in the UK to start saving. One of the biggest is the amount you can earn without paying tax. If you’re a UK basic rate taxpayer, you can earn £1000 in savings interest tax-free. Those who are on a higher tax rate can earn up to £500.
If you’re serious about minimising the tax you pay on your savings, you can also make the most of your ISA (independent savings account) allowance.
The Best Savings Accounts for You
Below, we’ve picked out a variety of savings accounts that give you a good deal on your money. We’ve tried to highlight a selection of different types, including regular savings, instant access, fixed bond, and notice account.
Our aim is to provide you with the pros and cons of each, as well as some information as to why we think they’re suitable. This method allows you to make an informed decision about which account you should open for your savings.
Yorkshire Building Society Single Access Saver – Easy Access
Gross interest rate of 1.41% AER (variable).
Open an account with just £100.
Choose monthly or annual interest payments.
Only one withdrawal a year can be made.
Why we like it:
This account from the Yorkshire Building Society offers a good interest rate on your savings. With as little as £100 you can get started, applying via post or in a branch. Customers can choose whether to take their interest payments each month, or in one annual sum. Yorkshire Building Society is protected for the full £85,000 under the FSCS scheme.
This is an easy access account, which means you don’t need to give notice of your withdrawal. However, you can only take money out of this Single Access Saver once a year. A second withdrawal will mean the account is closed.
Paragon Bank 3 Year Fixed Rate – Fixed Bond
2.37% AER fixed for 3 years.
Protected under FSCS scheme.
Minimum deposit of £1000.
Additional deposits/early withdrawals are not possible.
Why we like it:
Paragon Bank offers a variety of fixed-term accounts, ranging from one year to five years. The gross interest rate increases the longer you hold your money for. The three-year account gives a good balance between AER and commitment. If you hold your money for the full term, you’ll get an annual interest rate of 2.37%. You can deposit between £1000 and £100,000, but only the first £85,000 will be protected under the FSC scheme.
As with all fixed bond accounts, you won’t be able to touch your money until the full term of the account is up. This means you can’t add to or withdraw funds. Depending on your circumstances, you may want to choose a lower interest product that you can access easier.
OakNorth Personal Notice Account
Gross interest rate up to 1.79% (variable)
Minimum deposit of £1000
Notice period ranging from 35 days to 120 days.
Applications can only be made online.
The best rate is only available for longer notice periods.
Why we like it:
OakNorth has some very competitive interest rates on their notice accounts. If you opt for the 120-day notice period, you can expect an interest rate of 1.79%. There are also options for a 35-day period (1.36%) and a 90-day period (1.77%). This range means you can save your money in a way that’s right and convenient for you. You can deposit between £1000 and £250,000, but only £85,000 is protected by the FSCS scheme.
Applications can only be made online, and your account can only be managed through the OakNorth website. This factor may be problematic for some users. If you’re going to need regular access to your savings, you may wish to consider an alternative account or choose the shorter notice period.
Nationwide FlexDirect – Regular Saver
5% AER on balances up to £2500.
Various banking benefits from Nationwide.
No withdrawal restrictions.
After 12 months, interest drops to 1%.
£1000 must be deposited monthly.
Why we like it:
Nationwide are banking experts, and their FlexDirect account is perfect for those who want a guaranteed interest rate on their savings. At a rate of 5% on the first £2500 of your money, there are few regular savings accounts that offer such a good deal. You can make as many deposits and withdrawals as you need, and you also get access to the excellent banking services Nationwide provide.
There are a few caveats to this account. The main one is that after 12 months, your rate drops to 1%, which isn’t too competitive. You also have to deposit at least £1000 a month in order to qualify for the savings.
AA Easy Saver – Easy Access
1.36% gross AER (variable)
Free withdrawals without penalties or notice.
£100 minimum deposit.
Rate only guaranteed for 12 months. Drops to 0.02% AER after.
Why we like it:
This easy access account from AA provides an excellent rate for 12 months. You can freely access your money for the duration that you hold the account, meaning you won’t face penalties or have to give notice for withdrawals. It’s a useful service if you plan on making regular deposits but may need access to your savings.
Unfortunately, the 1.35% rate is only in place for the first year that you have the account. After this period, the rate drops to just 0.02%. You have to link a regular bank account to your Easy Saver, and all deposits must come from and go to this account.
Zenith Bank (UK) Fixed Rate Savings – Fixed Bond
Fixed term deposit rate of up to 2.30%.
Choice between 1, 2, and 3-year terms.
Early withdrawal or closure not permitted.
No online access.
Why we like it:
Like many other banks, Zenith offers a range of fixed-rate accounts. The longer you hold your money for, the greater rate of interest you’ll receive. The most attractive option is the 3-Year Fixed Rate account, which offers an interest rate of 2.30% AER. For the 1-year, you get 2%, and the 2-year yields 2.20%. The minimum deposit limit is £1000.
Again, this fixed bond account means you won’t be able to access your money before the term is complete, which could be problematic for some. Also, there is no online access to your account.
Secure Trust Bank 180 Day – Notice Account
1.86% (variable) AER on your balance.
Interest paid quarterly.
Long notice period of 180 days.
Only online access.
Why we like it:
Secure Trust Bank is offering a very competitive rate on their notice accounts. With an AER of 1.86% (variable) on a minimum balance of £1000, there is a lot to like about this service. There are few other institutions that offer such a high rate on their notice accounts. Applications can be made online via the bank’s website.
The 180-day notice period is quite long, particularly as there is are alternative accounts from this provider. It means you’ll have to manage your money closely and make requests well in advance of when you need your money. You can only make four interest withdrawals each calendar year, and only three capital withdrawals in the same period.
First Direct 1st Account – Regular Saver
5% AER for a year on up to £300 each month.
Excellent customer service and free signup incentive.
Must have a First Direct bank account.
If you miss a payment or make a withdrawal, your account is closed, and your interest rate drops.
Why we like it:
First Direct is a favourite amongst customers in the UK. Their banking services are constantly well-reviewed. This 1st account is no exception. With an AER of 5% on £300 per month, you can earn up to £96.77 interest if you save the maximum. It’s easy to manage your money, plus you get a free signup bonus.
The major downside is that if you miss a payment or withdraw money from your account, it will be immediately closed and your interest rate will drop to just 0.05%.