Savings Accounts


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Savings Accounts are broken down into two basic types: easy access accounts ('instant' and 'notice' access) and; bond savings accounts.  The third type is a Cash ISA, which is fundamentally a savings account wrapped in a tax-free ISA bubble.

When choosing a savings account, you need to consider a number of factors such as:

  • Do you want easy, regular access or are you prepared to lock away the money for a period of time?  Generally, the longer your money is tied up for, the better return you will earn so you need to decide whether higher returns or easy access is more important to you
  • Do you want to pay in regular amounts or a single lump sum?
  • Do you want tax-free savings i.e. not to have to pay tax on any interest?  If so, a Cash ISA might be your best option
  • Are you paying high interest on debts e.g. credit cards or loans?  If so, it's probably a higher priority paying off these debts before saving money into a savings account that offers an interest rate that is significantly lower that the interest rate on the debt (see debt vs savings blog)

Quick Question: What is Annual Equivalent Rate (AER) and how do you work it out?

Answer: The Annual Equivalent Rate is what the interest rate would be if interest was paid and compounded each year.  For a more detailed explanation and calculation examples, visit our AER Explained blog.

What is an Easy Access Savings Account?

These accounts give you instant access and allow you to withdraw funds without penalty.  They can be with high street banks or online accounts (which usually offer better interest rates than high street banks due to lower overheads).

Things to Bear in Mind with Easy Access Accounts

  • Interest rates are variable, usually a set percentage above the Bank of England base rate
  • Most banks will offer an comparitively high initial rate to attract your money
  • Savings accounts usually pay interest on an annual or monthly basis and some give you the option of choosing which you prefer
  • Many accounts now offer a guarantee that their rate will be a set percentage above the Bank of England's base rate for a certain period of time
  • With some accounts, you lose interest in any month in which you make a withdrawal. While these type of accounts often offer good rates, they're not much use if you think you'll dip into your savings on a regular basis
  • Instant access accounts do not offer interest rates as generous as 'notice accounts' where you need to give a certain period of notice to access your money, typically 1 - 6 months
  • If you are banking with the UK regulated bank or the building society account; you are protected by the Financial Services Compensation Scheme

What is a Bond Savings Account?

Savings bonds, or term accounts as they are sometimes called, enable you to deposit your cash at a fixed rate of interest for a set period of time. They usually offer better rates of return than Easy Access Accounts and may be the best option if you can put your money away for a year or more.

When choosing a savings account, you need to consider the factors above wuch as whether you need easy access, tax free savings or want to pay in regular amounts or a single lump sum.  If you have debts, you will probably want to pay them off first before saaving as the interest rates on them are usually much higher than those you will receive in any savings account.

Things to Bear in Mind with Bond / Term Accounts

  • Are you prepared to lock away for the money for a period of time (typically 1 - 5 years)?  Generally, the longer your money is tied up for, the better return you will earn so you need to decide whether higher returns or early access is more important to you
  • While you would usually get more interest than you would get in an easy access account, the higher rates may also reflect the fact that the company providing it expects rates to rise a little over the time period in which case you'll be stuck at your fixed rate for the duration. On the other hand, if interest rates drop like they did in 2009, then you will be locked into a comparitively high rate of interest
  • Many savings bonds only allow a minimum or maximum one-off lump sum to be invested at the start of the set period, usually a minimum of £1,000 but can be as high as £25,000 and you can't add any more capital before the end of the term. If during the term you need access to the capital, you'll probably be subect to a penalty such as loss of interest. In some cases you may be required to close the account completely
  • Are you paying high interest on debts e.g. credit cards or loans?  If so, it's probably a higher priority paying off these debts before saving money into a savings account that offers an interest rate that is significantly lower that the interest rate on the debt (see debt vs savings blog)
  • Bond accounts are very low-risk 'investments' especially if they are with a UK regulated bank that is covered by the Financial Services Compensation Scheme. However, in times of low interest rates, they often do not offer the type of returns that can acheieved in equities such as funds and stocks and shares so it could be worth considering these alternatives

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