How to choose a savings account

Savers have had a tough run of suffering low returns on cash, thanks to rock bottom interest rates since March 2009, with the all-time low of 0.10% in March 2020.

The good news is that people are becoming increasingly aware of the growing importance of choosing the right savings account, to give your money a safe and secure home and a better financial future for you. 

Here are some tips to help you choose the right savings account:

Should you choose an easy access or fixed term savings account?

Easy access accounts, which are also known as instant access or no-notice accounts, are the most popular type. Because they are so flexible you can dip in and out of without penalty, people favour them. 

However, they also typically pay the lowest rates. Banks pay more interest on cash deposited in fixed rate accounts, but the downside is they restrict access for the set period.

Ask yourself if you need to call on the money in the near term and select the most appropriate account.

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Choosing a tax efficient savings account

Saving money in an ISA means you don’t pay tax on returns. But by settling for an inferior rate you might be negating any benefits of the tax-free shelter.

Make sure you choose the highest rate you can find. With ISA savings, you don’t have to declare them on your tax return and every penny earned in interest is yours to keep.

Check the interest rates on your savings accounts

If you have had your money in the same place for a long time it may be prudent to check the rate of interest you’re being paid.

Rates do change and sometimes we are too busy to notice. Newer accounts tend to offer the best rates while older ones have plummeted to 0.01% in some cases.

You may also have forgotten that some accounts come with bonus rates which means after a set period – usually 12 months – the rate of interest drops. If that’s you – it’s time to move or renew your account. If your existing bank offers better savings rates on new accounts you can often easily renew though your bank's website or app without even changing your account details – look for options in the menu.

Find out how to keep your savings safe.

Tips for wealthier savers with savings accounts

Money deposited with banks or building societies authorised in the UK is protected by the Financial Services Compensation Scheme. This means that up to £85,000 per person in any one authorised firm is protected, even if the firm goes bust overnight. 

For a joint account the limit is doubled to £170,000. It’s important to remember that this compensation limit applies per authorised firm and not for each brand.

Some authorised firms have several savings brands under their wings, such as BM Savings and Halifax both being part of Bank of Scotland, so check if any of your savings providers are part of the same authorised firm, and make sure your balances don’t exceed the limits. 

If the bank or building society should fail, any money over the limit would be lost under current rules.

Finding the best rate when choosing a savings account

This doesn’t require any skill other than research. You can look at comparison websites such as moneysavingexpert.com. Just make sure you read the terms and conditions of each account, rather than just going for the top rate. Pay particular attention to any withdrawal restrictions.

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