What is a savings account?
A savings account is a type of account where you can safely keep your money until you need to use it.
Banks pay their customers interest on money held in savings accounts, and usually have a variety of accounts with a range of different interest rates and timeframes for you to choose from.
- Easy access savings accounts
Easy access savings accounts let you withdraw your money easily and without notice, but often have lower interest rates than other types of savings accounts.
- Fixed rate or fixed term savings accounts
Fixed rate or fixed term savings accounts often offer higher interest rates than easy access savings accounts, but they require you to lock your money away for a fixed amount of time with a fixed interest rate. The benefit of this type of savings account is that the interest rate is guaranteed and you know exactly how much money will be in the account when the term ends. A drawback of this type of account is that you might not be able to access your money if you need it, or you might have to pay a penalty if you do withdraw the money before the end of the fixed term.
- Regular savings account
A regular savings account is a type of savings account where you can save money on a regular basis. These accounts usually have a minimum and maximum monthly deposit amount, and that money is locked away with a fixed interest rate for a fixed period of time. This type of account is great for people who want to develop a habit of saving money, but who might not have or want to lock away a lump sum, but still want to get a higher interest rate than an easy access savings account.
- Individual Savings Accounts (ISAs)
Individual Savings Accounts (ISAs) are a type of tax-efficient savings account available to UK residents. There are four types of ISA accounts: cash ISAs, stocks and shares ISAs, innovative finance ISAs, and Lifetime ISAs (LISAs). Each account type has a different purpose and different benefits and limitations, but the biggest advantage of an ISA is that you don’t pay tax on any interest on cash held in an ISA, and you don’t pay income tax or capital gains tax from investments in an ISA.
The government sets an allowance for each account type every tax year, and you can save the full allowance into one type of account or split the allowance across some or all of the account types.
