About Savings Accounts

Savings Accounts

What is a Savings Account?

Whether you want to have some money put by for emergencies, are saving up for a holiday or special event, or have some spare cash sat in your bank account, a savings account is a great way to separate your savings from your day-to-day income and expenditure and ensure you get the best rate of interest on your money.

Savings accounts generally offer a better rate of interest than current accounts, but can offer less functionality. There are several types of savings accounts and when deciding which type is best for you it is important to consider a few things, such as whether you are a UK tax payer, how much and how often you want to save, how easily you want to be able to access your money, how likely you are to need to access your money, how long you are prepared to put your money away for, and so on.

How does a savings account work?

There are different types of saving accounts. Some require a lump sum investment when the account is opened, whereas others allow you to open the account with a small amount and then add to the account, either on a regular basis (such as by committing to put a set amount away each month) or when it suits you. You will then earn interest on the money in the account, according to the interest rate applied to that account.

Will I be able to access my money?

Some accounts allow you to access your savings instantly or with minimal notice, and these are ideal for keeping your ‘emergencies fund’ in, so that you can withdraw money if you need to in a crisis. Some accounts require you to give your provider a set period of notice, such as 30, 60 or 90 days, if you wish to withdraw money from the account. Other accounts may require you to tie in your money for the term of the account. It is worth making sure you aware of any restrictions on accessing your money before deciding if the account is right for you.

Will I know how much interest I will get in advance?

This depends on whether your account has a fixed rate of interest or is index-linked so that the interest rate varies in line with inflation.

What are the pros and cons of savings accounts?

Pros of a Savings Account:
-You will usually get a better rate of interest on your money.
-You can keep your savings separate from your day-to-day income and expenditure
-You can structure your saving to help you save in a more disciplined manner and to ensure that you have some money put by for emergencies

Cons of a Savings Account:
-They tend to have less functionality than a current account
-There may be restrictions on how much you can deposit and how often you can make deposits
-You may be committed to putting a set amount into the account each month, and the interest rate may be reduced if you are unable to do this
-There may be restrictions on whether you can access your money in an emergency, and on how long it takes to access your money; you may also have to pay penalties if you do need to make withdrawals from your account