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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
Recent analysis of Bank of England data by the investing platform Lightyear showed that savers have more than a trillion pounds languishing in bank accounts paying, on average, a smidgen over 1% in interest.
This is an eyewatering amount of money – a ‘1’ followed by 12 noughts – that is not working anywhere near as hard enough as it could be. Yet it accounts for nearly two-thirds (62%) of all the money that’s held in bank and building society accounts, according to official data.
With the cost-of-living continuing to weigh heavily on individuals, households and their finances, it’s important to make the most of our savings and boost our wealth.
To help, here’s our savings survival guide with a reminder about why we save in the first place, as well as how you can choose the best option for your needs and save smarter.
What’s on this page?
Saving is the bedrock of sound financial planning. It makes good sense, even if you don’t have much in the way of disposable income to build on. Not only does saving help you to become financially secure, but it also allows you to provide for you and your loved ones.
With money set aside, unexpected costs and emergencies – from surprise repairs to sending extra money to a backpacking grandchild - can be dealt with head-on, rather than fretted about.
Building a nest egg also helps you reach the short, medium, and long-term financial goals that are most relevant to you – from buying a first home, to funding a year’s worth of travelling around the world in later life.
Setting savings goals – such as putting money aside for a holiday – not only gives you something to aim for but can also be a means of keeping you motivated to continue saving.
According to Tesco Bank, nearly two-thirds of people (64%) set themselves some kind of savings goal.
Automating your payments, by using direct debit for example, can make it easier to keep up the savings habit over the longer term.
You can also squirrel away money almost without thinking about it by using a ‘round up’ tool or savings app provided by high street and other savings institutions. These round up your spending, usually to the nearest pound, and put the difference into a dedicated savings pot.
Ideally, it’s worth dividing goals into three types: short-, medium-, and long-term. Short-term might include putting money aside for up to 12 months, say, for a one-off luxury, or treat such as a holiday.
In contrast, medium-term goals typically last up to five years with the aim of saving for something substantial such as a house deposit, or a new car.
Meanwhile, long-term savings might stretch out over 20 years or longer and encompass a goal such as helping to fund your needs in retirement.
To make your task easier from the outset, ask yourself a series of questions:
But before you start to save, it’s important you clear debts and have enough money in a current or easy-access account to cover bills and other day-to-day outgoings.
Conventional financial planning wisdom suggests that, where possible, building up a cushion of at least three months’ worth of these day-to-day expenses is the minimum before turning your attention to saving.
Moving money that’s left over from a current account into a savings account will then set you on the path to earning better rates of interest and boosting your wealth.
This is because, and despite so much money languishing in them, current accounts tend to pay significantly inferior rates of interest compared with savings accounts.
In fact, the Bank of England statistics show that more than £300 billion currently sits in accounts paying no interest at all.
Saving is different to investing. But just because saving is about squirrelling away cash rather than the more glamorous image of investing in stocks and shares, it still comes with its own brand of jargon. This can be confusing to would-be savers looking to navigate their way round the market.
For example, interest is the money that you earn on savings when you deposit your money with a savings account provider. The amount you receive is usually shown as a percentage. The larger the number, the better the return on the cash you’re setting aside.
For example, an advertised rate of 4% would produce £4 in interest on a deposit of £100.
When savings providers quote an interest rate, you will often see the letters AER next to the figure in question. This stands for Annual Equivalent Rate and is designed to make it easier for customers to compare rates more easily across different accounts.
As well as the rate, you should also look out for whether the interest rate on a savings product is being quoted as ‘fixed’ or ‘variable’.
If the rate is advertised as fixed, usually over a particular length of time, it means the figure will not change during that period regardless of external factors – such as a change to the economic backdrop.
Analysis from Skipton Building Society shows that £119.6 billion held in fixed-rate savings accounts is due to mature between September 2026 and the year end.
The findings mark the start of what Skipton has dubbed ‘Maturity Season’, a period when a large volume of fixed-rate savings reach the end of their term and savers face important decisions about where to put their money next.
In contrast, variable means the figure could either go up or down. For example, if the Bank of England decides to raise or lower the ‘bank rate’ in a bid to tackle inflation, which itself can be affected by wider, geo-political events (such as the Middle East conflict).
The Bank of England’s influential Monetary Policy Committee meets eight times a year to set the bank rate which currently stands at 3.75%. The remaining dates in 2026 are: 17 September, 5 November, and 17 December.
A bonus rate is an extra slice of interest, also expressed as a percentage, that’s added on top of the standard rate of a particular savings account.
It usually lasts for a certain amount of time and can be added in one of two ways: as an introductory bonus rate, or as a conditional bonus rate where certain criteria are met by the customer. Maintaining a minimum balance on the account, for example, or limiting the number of withdrawals.
Several types of savings products will pay better returns than the paltry rates usually on offer from current accounts. But the key is to home in on the ones that best match your personal financial circumstances.
Fixed-rate savings accounts may offer returns that are greater than easy-access products, but there are other considerations to bear in mind. Customers may be required to lock in their money for an agreed period, for example, say one to five years.
On the plus side, an account holder will know in advance what their cash will earn and over what period. But there might be a trade-off for this piece of mind or enhanced return. Savers might be required to give notice before making a withdrawal, for example, or the number of withdrawals could be limited to a just a handful each year.
In contrast, for those looking to save little and often, a regular saver account might fit requirements. Some regular saver accounts are easy access, while others have certain conditions attached preventing withdrawals until the end of an agreed time period.
Before signing up to any account, check the restrictions and match the product that best fits your needs.
Shop around using online comparison sites and aggregators to find the best rates and use the AER to weigh up one offering over another.
You can find out more here about the different types of savings account. This September, UK Savings Week runs between the 21st and the 27th offering hint and tips for making the most of your money.
They also come in different guises such as ‘Cash’ (aimed at savers) and ‘Stocks & Shares’ (aimed at investors who are happy taking more of a risk with their money in exchange for potentially higher returns).
The most recent Bank of England data showed that £483 billion was held in Cash ISAs paying an average rate of 3.3%.
In the current 2026/27 tax year, all adults have an ISA allowance worth £20,000. But from the 2027/28 tax year, which begins on 6 April 2027, the rules will change in terms of how monies can be allocated.
Those aged 65 or over will continue to be allowed, should they so wish, to save up to £20,000 in Cash ISAs. But the under-65s will be limited to a maximum of £12,000 in Cash ISAs. The balance of £8,000 is intended for non-cash holdings such as Stocks & Shares ISAs.
Interest paid on conventional (ie, non-ISA) savings accounts is taxable paid at the account holder’s marginal income tax rate. But savers each have an annual Personal Savings Allowance or PSA which means they can receive a certain amount of interest each tax year before it’s subject to tax.
For basic rate (20%) income taxpayers, the tax-free PSA stands at £1,000 each tax year. This drops to £500 for higher rate (40%) taxpayers and reduces to zero for those in the additional rate (45%) tax bracket.
From April 2027, the tax rate on savings interest increases by two percentage points which means basic rate and higher rate payers will be charged at 22% and 42% respectively.
Those on lower incomes (under the income tax personal allowance of £12,570) also receive an extra starting rate tax-free allowance of up to £5,000 for their savings.
If your savings are held with a UK-authorised bank, building society or credit union that fails, the Financial Services Compensation Scheme (FSCS), identified by a purple padlock logo, automatically compensates customers up to £120,000 per eligible person, per bank, building society or credit union.
Joint accounts are eligible for FSCS protection up to the same limit, per eligible person.
My Lost Account is a free online service that helps you to locate lost bank and building society accounts. To get started, users need to complete an online form. The service then sends your information to all the banks and building societies with whom you potentially have an account.
The Billions4Millions campaign, in partnership with the UK’s financial services sector, has attracted nationwide media attention and is on a quest to unearth £3 billion in lost cash in 2026 alone.
Saving isn’t easy, especially when money is tight elsewhere. Here are four potential savings mistakes which are worth avoiding along your savings journey:
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