Guide to Savings
Accounts Types
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Guide to Savings Accounts Types
Savings accounts come in many forms, but they all have the same goal: to build up a
lump sum of money. However, despite all working towards to same end, they get there
by different means and what works for one person might not work for another.
Anyone serious about saving needs to have a good overview of the market. This is
particularly important at the moment as record low Bank of England base rates make
earning a return on savings is harder than ever.
It is essential that people know and understand the differences between the various
types of savings accounts to ensure they work with an account that works for them.
Types of Savings Accounts
Instant access
As the name suggests, these are savings accounts which offer instant access to your
cash. Sometimes called no-notice accounts, it is possible to withdraw money from the
account without any restrictions or penalties.
Instant access accounts usually come with a plastic cash card that allows the account
holder to take money out of an ATM, while others only offer withdrawals in-branch over
the counter.
This type of account is best suited to people that need to have access to their cash, or
are using the account as an emergency savings fund. In return for the ease and flexibility
an instant access account offers, interest rates are typically very low. Bank of England
figures suggest the average rate is less than 0.2% AER.
Notice
This type of account is almost the complete opposite of instant access as the account
holder will need to give the provider anywhere between 30 and 120 days’ notice to
withdraw money.
With waiting times of up to four months, it is important that people only lock their money
away in a notice savings account if they are confident that they will not need the cash in
a hurry. Any emergency withdrawals will likely result in interest being lost.
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In return for stashing cash away for at least 30 days – usually longer – notice accounts
tend to pay a better rate of interest. However, this isn’t always the case anymore, so it is
important to compare notice accounts with instant access before taking the plunge.
Cash ISA
The low Bank of England base rate has hit ISAs fairly hard, with the market-leaders still
offering paltry rates of interest. However, ISAs have an added benefit over other savings
accounts as they are tax-free.
This means that no tax is paid on any interest earned, whereas UK taxpayers could lose
between 20% and 45% on the interest generated from most savings accounts. As such,
cash ISAs are usually the best place for savers to start. The maximum anyone can put
into an ISA is £15,000, with a combination of cash or shares.
Regular Savings
As the banks and building societies rely on their customers’ money to operate their
business, regular savings accounts have become increasingly important. They are
designed for people that want to save a fixed amount each month – perhaps a
percentage of their wages.
Regular savings account rewards customers that deposit the agreed amount every
month by either offering a higher rate of interest or a cash payment.
There are a few things to consider, such as restrictions on cash withdrawals. Some
accounts won’t allow any withdrawals until the end of the year when the interest is
added, while others put a limit on the number of withdrawals.
These accounts are best for people that are just starting out with their saving and so will
be drip-feeding their account rather than investing a cash lump sum. However, by saving
regularly, you won’t get paid interest on the entire sum.
Fixed Bonds
Given the poor rates of interest as a whole, fixed bond savings accounts are one of the
best options for savers at the moment. Anyone willing to put their money under lock and
key for at least 12 months (but up to five years) will get a higher rate of interest.
The way the interest is paid depends on the providers as some will pay annually and
others only once the investment matures. Fixed bonds are best for people that are solely
dedicated to getting the best possible return on their investment over a prolonged period.
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As people are unable to access their money for the term of the bond, they must be
confident that they won’t need to use the cash. Emergency withdrawals can be made but
it will usually lead to an interest penalty.
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