Looking for the best savings account available? The reality is that “best” will depend on your saving habits, how frequently you want to access the account and other factors. We’ve listed the main types of savings accounts and the pros and cons. You’ll find step-by-step advice on how to choose the best savings account with our “top pick” recommendation (find out how we choose our top picks).
As the name implies, these are savings accounts where you can still easily access your money. So you have the freedom to make numerous deposits, but also the ability to withdraw funds instantly without giving any notice. The flip-side is that in exchange for that flexibility, the interest rates are among the least competitive for savings accounts. This type of account can usually be opened quickly online, with a small initial deposit (sometimes as low as £1). You can then save as little or as much as you want in the account (although if your interest income on large deposits goes over your personal savings allowance, there could be tax to pay).
With this option, you can usually still make deposits when you like, but you will have to give notice if you want to take money out of the account. This notice period could range anywhere from one month up to four months or more, depending on which provider you sign up with. If you don’t give the required notice, there are penalties – often in the form of reduced interest payments. The interest rates on notice savings accounts tend to be better than easy-access savings accounts, with longer notice periods attracting higher rates. You usually need to have a higher minimum deposit to open a notice savings account, and you’ll also need to maintain a certain balance in the account.
With these savings accounts, you pay in a regular amount every month for a set period of time. Both the amount and time period will vary depending on which provider you go with, but there are options out there where you can choose to save relatively small amounts. The downside is you can’t withdraw the funds during this set period, and if you miss a payment or take the money out, there will be penalties. The upside is that this type of account attracts higher interest rates than both easy-access and notice savings account.
Individual savings accounts, or ISAs as they are more commonly known, come with a tax-free wrapper. So you can save money in them and not pay any tax on the interest. You can only open one new ISA per tax year and there is a yearly limit to the amount you can save in them (currently £20,000 for the 2020/21 tax year). The other conditions attached to ISAs are set by different providers, so some of them have easy-access elements, while others require you to tie the money in for a fixed term, with no withdrawals allowed. The least flexible options tend to have higher interest rates.
Fixed-rate bonds involve depositing a single amount of money for an agreed period of time, at a set interest rate. So the money is tied in for a fixed term, which can range for one to five years. You won’t be able to add money to the savings pot during this time or withdraw it. The interest rate you get is fixed, which provides certainty on your level of return (although it’s not so great if interest rates go up elsewhere in the meantime). The longer you lock your money in, the higher the interest rate tends to be. There is usually a high minimum deposit required, so it could be a good option if you have a lump sum available, that you know you won’t need to get your hands on again in the immediate future.
What turns out to be the “best” savings account for you will depend on your individual needs, so here are some pointers to consider before you choose one:
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