An account that lets you withdraw your savings at any time, or with very little notice. Because of this flexibility, the interest rate is typically low.
Everyone in the UK is encouraged to save by the government with a tax-free allowance, which in 2020/21 is £20,000. This means cash inside these accounts won’t incur any tax on the interest at all. You also have the flexibility to withdraw cash at short notice.
These accounts are similar to a Cash ISA – you get a tax-free allowance where you don’t pay tax on the interest, but with these accounts you agree to a fixed interest rate for a certain period of time and cannot withdraw your money. These are typically higher interest rates.
A savings account with normally higher interest rates, but you must plan and notify the bank of withdrawals in advance.
These are accounts where the money is almost completely locked away for a set period of time and with a fixed interest rate that’s guaranteed. More typical for large lump sums.
With a regular savings account you agree to pay in a certain amount each month, and will normally get a higher interest rate.
These are a great way to save for your children – it’s a tax-free allowance to set them up for the future. The current allowance is £9,000 per year.
There’s a fair bit of choice for savings accounts, and they are all suited to different needs. The good thing is you can get help making the right choice.
We’ve found the savings decision tree from MoneySuperMarket to be super helpful. It’s easy to use, give it a go here: find the right savings account for you.
In the UK, your savings are protected up to £85,000 should your bank not be able to pay you back, typically because they’ve gone bust (which very rarely happens). It’s called the FSCS – Financial Services Compensation Scheme, and is funded by the financial services industry and set up by parliament to guarantee your savings.
The scheme actually protects you from all financial services firms, not just banks, and protects mortgages, insurance and investments too.