The different types of savings accounts

Discover which savings account is right for you

Melanie Wright – Virgin Money Living Mentor

by Melanie Wright | Independent Money Mentor

Award-winning freelance financial journalist

Saving money can often mean wasting time. There are so many different types of accounts available that it’s easy to spend hours bouncing between bank websites, reading endless small print, and trying to figure out which one is best for you before giving up and stuffing all your money in a box under the bed. Here’s our quick-fire guide to make things a bit easier.

Are you the spontaneous type, the kind of person who books holidays on a whim because it’s miserable outside and you’ve just watched an episode of Love Island? An instant access account may be your best bet because you’ll be able to take money out without giving the bank any notice. Interest rates on instant access accounts are usually variable, and so can move up or down over time. However, if you feel like you don’t necessarily need access to your money straight away or that you could limit the number of withdrawals you make from your account, you may be better off with a Limited access account, which will offer you a better rate of interest. The accounts are also usually variable and you can add to them over time.

Simply put, a limited access account offers you a better rate of interest if you don’t need access to your money straight away or feel that you could limit the number of withdrawals you make from your account. The accounts are usually variable and you can add to them over time, unlike some fixed term accounts.

Are you moderately spontaneous, the kind of person who’s prepared to wait a couple of months before booking your trip to a sunny paradise? A notice account could be for you. These require you to let your bank know in advance that you want to make a withdrawal, often in return for a slightly higher interest rate than you’d get from an instant access account. Notice periods vary in length; they’re typically 30 or 60 days, although sometimes they are as much as 120 days in advance. Rates on notice accounts are also usually variable.

Are you a long-term planner, the kind of person who reckons that September 2022 will be the perfect moment for a glorious beach break? A fixed rate account could be for you. They pay a certain rate of interest for a set period, ranging from six months to five years. You often can’t make withdrawals during this time or, if you can get money out, you might lose some of the interest you’ve earned.

In return for leaving your savings untouched, fixed rate accounts usually provide better rates than instant access accounts. This type of account is likely to suit you if can afford to tie your savings up for a while.

With a regular saver account, you agree to save a certain amount every month, typically ranging from £1 up to a maximum of £250. They tend to only last for a year, at which point your money is moved into an account paying a lower rate of interest. While you can’t usually make withdrawals this type of account often provides the most generous returns.

ISAs earn you tax-free interest. You can save up to £20,000 in an ISA this tax year (2019/20), of which £4,000 can be saved into a Lifetime ISA. Cash ISAs, like other saving accounts, come in all different shapes and sizes, so you can pick from fixed rate, easy access and notice ISAs. If you keep savings outside an ISA and you’re a basic rate taxpayer, you won’t have to pay tax on the first £1,000 of interest you earn thanks to the Personal Savings Allowance, introduced in 2016. But be aware that this allowance shrinks to £500 if you’re a higher rate taxpayer, and if you’re an additional rate taxpayer you don’t get an allowance at all.

So that’s your briefing on all the savings options open to you. Now, where did you leave your passport?

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.