Different types of savings accounts

What’s a savings account?

The clue is in the name – savings accounts are a place to keep your money and earn interest on it. There are lots of different types, and the interest rates, fees and tax on interest will vary depending on which one you choose.

What types of savings accounts are there?

There are loads of savings accounts on the market, and the right one for you will depend on how much you plan on saving, how often you want to save, and when you want to access your money. We’ll go into all of these points in more detail in this article.

Instant access, limited access, notice and fixed rate

There are four main types of access for savings accounts:

Instant or easy access: you can withdraw your money at any time, without paying a penalty.
Limited access: with these, there are some limitations on how many withdrawals you can make.
Notice savings: these accounts require you to give notice before you withdraw your money. This can be anywhere from 30 to 90 days.
Fixed rate: with a fixed rate account, you commit to locking your money away for a set period of time (usually between 6 and 12 months) and in exchange you get a fixed interest rate for the duration.

Fixed term accounts allow you to lock in the interest rate you’ll receive over the term, whereas with instant and easy access accounts, the interest rates vary with the market.

Easy or instant access savings accounts can be good if you:

Are more concerned about access to your money than locking in an interest rate
Want to start small by opening an account with just a few pounds
Want to top up your savings whenever it suits you
Aren’t sure how much you can save each month

Limited access savings accounts can be good if you:

Want a potentially better interest rate
Are saving for goals but need occasional access to your money
Want to encourage good saving habits by limiting your withdrawals
Have a decent amount saved and want better returns with some flexibility

Notice savings accounts can be good if you:

Don’t need immediate access to your money and are happy to give notice to withdraw
Are saving for medium-term goals with some flexibility
Want a higher interest rate
Are organised and can plan ahead for when you might need your money

Fixed rate/term savings can be good if you:

Want a consistent interest rate so you know what you’re going to get back
Don’t need to use your money for a set period of time
Have a lump sum to deposit
Have £500 or more in savings (although this isn’t always a must)

Individual Savings Accounts (ISAs)

ISA stands for ‘Individual Savings Account’, and is a tax-efficient way of saving as you don’t have to pay any tax on the interest you earn, even if you go over your Personal Savings Allowance.

Currently, you can only save a maximum of £20,000 a year into ISA accounts, so if you plan on saving more than this, a non-ISA savings account or a mix of ISA and non-ISA savings might be a better option.

If you choose to go with an ISA, you’ll need to decide what type. There are a few, but the main two are cash ISAs and stocks & shares ISAs. While a cash ISA is a savings account, a stocks & shares ISA isn’t – it’s an investment account.

The investment returns earned on stocks & shares ISAs can be higher than interest earned on cash ISAs, but your money’s at risk as it’s an investment, so you could get back less than you put in or even lose your money altogether. Investments are intended to be kept for a longer term, usually at least 5 years, allowing your investment time to ride out any dips in the market.

ISAs are good if you:

Want to avoid getting taxed on interest you earn above the Personal Savings Allowance
Want to invest while protecting your returns from tax

Regular savings accounts

Regular savings accounts, also known as ‘monthly savers’, are accounts where you agree to make a savings deposit each month – usually between £10 and £500. The amount can change, but the provider might have minimum and maximum limits. Some providers will let you skip a month, but not all, so check this if it’s important to you. In exchange for the commitment, they often offer better interest rates than standard savings accounts. Some providers might charge you a penalty for withdrawals, so make sure you understand the terms before opening an account.

At the end of the saving term (usually 12 months), you get back all the money you paid into the account, plus interest. It’s worth noting that interest on a regular savings account is paid at the end of the term, while other types of savings accounts typically pay interest monthly. You won’t pay tax on any interest from regular saving accounts up to your Personal Savings Allowance, but if you exceed this, you might want to consider opening a cash ISA.

Regular savings accounts can be good if you:

Can reliably set aside money each month
Don’t mind having limited access to your savings for a while
Want a higher interest rate

What about Premium Bonds?

Premium Bonds are a product from National Savings & Investments. They’re not technically a savings account because they don’t earn interest, but many people choose to keep their savings in Premium Bonds.

Rather than your money earning interest, Premium Bonds work like a prize draw. You can save between £25 and £50,000, and win £25 to £1 million tax-free in the monthly prize draw. The more Premium Bonds you own, the more chances you have of winning, but there’s no guaranteed return on your money.

You can buy Premium Bonds for yourself (if you’re over 16) or for children as gifts.

While there’s no guaranteed return (you might not win at all), Premium Bonds are a low risk option for saving because you’re guaranteed to get out the same amount as you put in, and any winnings are tax-free.

Just bear in mind that your money could be worth less when you withdraw it because of inflation, and because it doesn’t earn any interest.

Can I have more than one type of savings account?

Yes, there’s no limit on the number of savings accounts you can open. You can also open and contribute to as many different types of ISAs as you like within the same tax year, with one exception: you can only pay into one Lifetime ISA (LISA).

The annual ISA allowance is currently £20,000. This is the maximum you can save across all your ISAs combined within a tax year. Within that allowance, you can only put a maximum of £4,000 into a LISA. Read more about this in our ISA guide.

This isn't financial advice or personalised to you, and we're not recommending or suggesting you take any particular action. If you're in any doubt about what's right for you, then speak to an authorised financial advisor. Tax treatment depends on individual circumstances and may change in the future.

The value of your investment can go up and down and you could get back less than you put in.

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