Experts recommend that you should save at least three months of your usual expenses in case things go wrong or your financial situation changes. But as well as putting money into an emergency fund, you might want to save up for something in particular — a new car, a dream holiday or an expensive piece of jewellery, for example.
But if you are in a position to start putting money away, you might be feeling overwhelmed by the decision of where to save your money. From regular savings accounts to stocks and shares ISAs (Individual Savings Accounts), there are many different bank accounts and savings options available.
Some of the best well-known savings providers in the UK include Barclays, HSBC, Nationwide, Natwest, Lloyds, Royal Bank of Scotland, Santander, TSB and Virgin Money. But smaller companies, such as Monzo and Paragon Bank, provide options for savers too.
To help you find the best savings account for you, we’ve written this article, which goes through some of the things to consider when picking where and how to save your money, and outlines what some of the different options are.
How do you pick a bank savings account?
When deciding on where to save your money, it’s a good idea to consider things like how secure your funds are, what interest rate you’re offered, whether you’ll be charged transaction or ATM fees, how you prefer to deposit money, what your other banking preferences are, whether there’s a minimum balance requirement, whether there are any introductory offers and what other people recommend.
But however you choose to save your money, it’s important to remember that it doesn’t necessarily have to be a long-term thing, and with interest rates fluctuating, it pays to shop around regularly and transfer your funds to different providers accordingly. Plus, you can have more than one savings bank account open at once, which should also take the pressure off making your decision.
Read on to find out more about choosing a savings account.
Top nine things to consider when picking a savings bank account
Here are some of the things you might want to think about when deciding where to put your savings:
1. How secure your funds are
Most UK savings accounts are protected by the Financial Services Compensation Scheme (FSCS), which will reimburse you up to £85,000 for a single account or £170,000 for a joint account if the provider you’re saving with goes bust. So make sure you check your savings bank account is authorised by the FSCS. Otherwise, you risk losing your savings. Just bear in mind that each banking group shares the same amount of compensation. So if your savings add up to more than £85,000 (or £170,000 if your money is in a joint account), it’s a good idea to spread your money across accounts with different banking groups.
You might decide to invest your savings — in a stocks and shares ISA, for example — but be warned that while you could get a better return than you would do in interest, you could actually end up losing money.
2. What interest rate you’re offered
Ideally, you should look for a savings bank account that pays higher-than-average interest on your deposits so you get a better return on your money.
If you decide to open a fixed-rate savings account, set a reminder to reassess the situation every year and move your money elsewhere if it would benefit you to do so. This is especially important if you’ve opened an account with a special introductory interest rate that ends after a year.
Before withdrawing your money, though, check whether you have to pay a withdrawal fee.
3. Whether you’ll be charged basic fees
The best savings bank accounts do not charge you for the basics.
Some of the charges you should try to avoid include monthly service fees, inactivity fees and paper statement fees.
4. Whether you’ll be charged ATM fees
With a savings account, you’re more likely to be depositing money than taking it out, but when the time comes to withdraw your savings, you’ll want to make sure you’re not charged ATM fees for doing so.
Note that some savings bank accounts restrict the number of withdrawals you can make within a set period, so check this before you apply. Otherwise, you could incur a fee or a reduced interest rate.
5. How you prefer to deposit money
With the rise of online banking, when deciding on a savings bank account, you now need to consider how important it is for you to have a physical branch that you can walk into.
How often you need to make cheque or cash deposits could impact your decision, but it might be helpful to know that some banks offer mobile or home deposit services if there isn’t a branch near you.
6. What your other banking preferences are
When shopping around for a savings bank account, make a list of your requirements and compare the different features that are on offer to work out which is more beneficial for you.
If, for example, you rely on interest from your savings for everyday living, go for an account that pays interest on a monthly basis.
7. Whether there’s a minimum balance requirement
Some savings bank accounts require you to make a minimum deposit amount. If so, check what the amount is — which can be as much as £1,000 or as little as £1 — as you may be charged account fees or miss out on high-interest rates if you fail to deposit the minimum amount.
8. Whether there are any introductory offers
Incentives like introductory interest rates and bonuses for choosing to reinvest your savings can be tempting, but do the maths to make sure the account that’s offering them is still competitive compared to others.
9. What others are saying
Read reviews online and speak to friends and family to find out who they bank with and whether or not they’re happy with the service they receive.
It’s a particularly good idea to look into the bank’s reputation for customer service, as the last thing you want is to be kept on hold for hours while you wait to speak to someone or have your email queries met with radio silence.
What are the different types of bank savings accounts?
Unlike your everyday current account, you won’t need to access the money in your savings account very often and you’ll usually earn interest on your deposits. But how much interest you earn depends on the type of account you have. Different accounts also have other terms and conditions you should be aware of, some of which we’ve outlined in the sections below.
Easy access savings bank accounts
Sometimes referred to as instant access savings accounts, most of these allow you to withdraw your money at any time without incurring charges. However, the pay-off will usually be a lower interest rate.
Some easy access accounts do restrict the number of withdrawals you can make in a year, though, so if you need regular access to your money, make sure you check this. Otherwise, you could be charged a fee or lose interest.
Fixed-rate savings bank accounts
Also known as fixed-rate bonds, these offer a fixed rate of interest for a set period of time, during which you won’t be able to access your money. Usually, the longer the fixed term is, the higher the interest rate will be.
This type of savings bank account is a good option if you have a lump sum of cash you don’t need to access for a while and want to earn consistent interest on your money. Bear in mind, though, that if the Bank of England raises the base rate, your interest won’t increase.
Another thing to note with fixed-rate savings accounts is that they usually have a minimum deposit amount.
ISAs
ISAs allow you to save money without paying tax on it. For the tax year 2022/23, every adult gets an ISA allowance of £20,000, while children get an ISA allowance of £9,000. This is in addition to your Personal Savings Allowance.
If you take money out of your ISA, you will usually lose that part of the tax-free allowance, and you may have to pay a withdrawal fee —although some providers allow penalty-free withdrawals, often with the caveat that the money is returned within a certain amount of time.
You can choose to put your money into a cash ISA, an Innovative Finance ISA (IFISA) or stocks and shares ISA. As mentioned earlier, investing in stocks and shares can provide much higher returns, but this is riskier as you could lose everything if the stock market crashes. IFISAs also have the potential for higher returns, but, again, there’s the risk of losing your money.
Some providers allow the transfer of ISAs, so if, after a year, you decide to save with a different provider, you may be able to do so without losing any of the tax benefits.
Regular savings bank accounts
With a regular savings account, you may benefit from a competitively high-interest rate, but often this will only be available for a fixed period of time. Once this fixed period is over, your money will usually revert to your bank’s normal savings account rate, which in most cases is relatively low. With this in mind, it might be worth shopping around for a different savings account after you’ve benefitted from the introductory rate.
Usually, regular savings accounts are linked to current accounts and will require you to deposit a minimum amount each month. If you fail to do this — or you withdraw funds — you may lose the higher interest rate.
Summary
With so much choice when it comes to where and how to save your money, picking the right savings account can be an overwhelming decision to make.
To help you decide, the top nine things to consider are:
- How secure your funds are
- What interest rate you’re offered
- Whether you’ll be charged transaction fees
- Whether you’ll be charged ATM fees
- How you prefer to deposit money
- What your other banking preferences are
- Whether there’s a minimum balance requirement,
- Whether there are any introductory offers
- What other people recommend
However you choose to save your money, it doesn’t necessarily have to be a long-term thing, and with interest rates fluctuating, it pays to shop around regularly.
The main types of bank accounts to choose between are easy access savings bank accounts, fixed-rate savings bank accounts, cash, IFISA or stocks and shares ISAs and regular savings accounts. Interest rates and terms and conditions differ between accounts, so make sure you read the fine print before making your decision.