A savings account does two jobs: it keeps your money safe and it pays you interest for holding it. Beyond that, accounts differ in how quickly you can reach your money, how long the rate is fixed and how interest is taxed. Which features matter most depends on your circumstances.
V5 Solutions has set out the main types of UK savings account below, with what each is typically used for and the points to consider before opening one. We finish with a short checklist you can use when comparing offers.
The Main Types of Savings Account
Easy access accounts
Often used for: emergency funds and money you may need without warning.
Bear in mind: the interest rate is variable and tends to be lower than on accounts that restrict access. Some limit the number of withdrawals per year or include a temporary bonus rate that expires.
Notice accounts
Often used for: savings you are unlikely to need quickly but do not want to lock away completely.
Bear in mind: you must tell the provider in advance before withdrawing, with notice periods commonly ranging from a few weeks to several months. Some providers allow early access with an interest penalty, while others do not allow it at all.
Fixed-rate bonds
Often used for: a lump sum you are certain you can leave untouched for the whole term.
Bear in mind: the rate stays the same for the whole term, which protects you if rates fall but means you miss out if they rise. Withdrawals and further deposits are usually not permitted.
Regular savings accounts
Often used for: building a saving habit from your monthly income.
Bear in mind: there is a maximum monthly deposit, and the advertised rate applies only to the balance as it builds. If you pay in the same amount every month for a year, the interest earned is about half of what the headline rate would pay on the final balance held for twelve months.
How Are Savings Taxed?
Interest on ordinary savings accounts counts as income, but the Personal Savings Allowance means many people pay no tax on it. How much interest you can earn tax-free depends on your income tax band, and higher earners receive a smaller allowance. You can read more about how this works on GOV.UK.
Cash ISAs shelter interest from tax completely, regardless of your income. Each tax year you have an overall ISA allowance, which can be split between different types of ISA. Cash ISAs are available with easy access, notice or fixed terms.
The Lifetime ISA is designed for buying a first home or saving for retirement. To open one you need to be aged 18 to 39. A government bonus of 25% is paid on contributions up to an annual limit. Withdrawing for any other purpose before age 60 triggers a charge that can leave you with less than you paid in, and homes bought with it must fall below a price cap. Full rules are on the GOV.UK Lifetime ISA page.
People on low incomes who receive Universal Credit may also qualify for Help to Save, which pays a government bonus on regular savings.
How Is Your Money Protected?
The Financial Services Compensation Scheme (FSCS) protects deposits held with UK-authorised banks, building societies and credit unions, up to a limit per person, per authorised institution. Several well-known brands can operate under one banking licence, in which case the protection limit applies to your combined balance with all of them. If your savings are substantial, it is worth checking which licence each brand uses.
A Five-Point Checklist Before You Open an Account
- Purpose: what is this money for, and when might you need it?
- Access: do the withdrawal rules fit that timescale?
- Rate: compare the AER (annual equivalent rate), and check whether it includes a bonus that ends.
- Tax: would an ISA be more efficient for you?
- Protection: is the provider authorised, and does it share a banking licence with anywhere else you save?
If you are deciding whether to use savings or borrow for a large expense, our guide to when to dip into your savings may help. Rising prices also reduce what savings can buy, as explained in our article on how inflation affects your budget. This article is general information, not financial advice. For free, impartial help with your own situation, visit MoneyHelper.
