Types of savings accounts
Choosing the right account for you.
Not sure of the benefits of a savings account or what type of account is the right one for you? Use our quick and easy guide to help you understand the differences and to make a confident choice!
What is a savings account?
A savings account is a separate account to store savings away from your day-to-day spending while earning interest.
There are different types of savings accounts which include:
1. Instant access savings accounts
An account which allows you to pay in and take out money whenever you want. The interest rate is usually variable. This means it can change.
Advantages:
- Flexibility: You can add or withdraw funds at any time without penalty.
Disadvantages:
- Uncertainty: Your returns aren’t guaranteed, as the interest rate may go up or down.
- Potential for Higher Return accounts: Higher interest rate paying options are usually available if you don’t need to access your money.
2. Fixed rate savings accounts
An account for saving a lump sum for a fixed amount of time or ‘term’. The rate of interest you’ll earn is fixed for the term and can’t change.
Advantages:
- Guaranteed Returns: This means you know exactly how much interest you'll earn over that period.
- Higher returns: Fixed interest rates are usually higher than interest rates available on instant access accounts.
- Great for Long-Term Goals: If you have a long-term financial goal and don’t require access to your money, a fixed-rate account can be a smart choice.
Disadvantages:
- Limited Access: You can’t usually access your money during the fixed term. If you can, some providers may charge a penalty.
- Risk of Missing Higher Rates: If interest rates increase, you won't be able to benefit until the end of your fixed term period.
3. Limited access savings accounts
The rules on limited access accounts vary between savings providers and accounts. Usually, a limited number of withdrawals are permitted per year, or a notice period is required for making withdrawals (this means you can request a withdrawal but will have to wait the notice period before the withdrawal completes).
Advantages:
- Flexibility: Generally offer more flexibility to make withdrawals than a fixed term account.
- Potential for Higher Returns: Often pay higher interest than instant access and if interest rates rise, you’ll benefit.
Disadvantages:
- Uncertainty: Your returns are not guaranteed, as the interest rate may go up or down.
- Restricted access: You can’t usually access your money as freely as instant access accounts. If you exceed restrictions, some providers may charge a penalty.
“Remember, the right account for you depends on your individual needs and circumstances.”
How to decide what’s best for me
Identifying your savings goals is key. Whether it's a holiday, a major purchase or an emergency fund, knowing what you're saving for can help you choose the right account.
Remember, the right account for you depends on your individual needs and circumstances. Consider seeking financial advice if you're unsure.
Other savings options are available including tax-free ISAs and Children’s savings account.
More information on all our savings accounts:
Savings Accounts
