Savings accounts

Savings accounts are worth having if you’re looking to put some money away, long-term. Unless you commit to putting a substantial amount away every month, it’s unlikely that you’ll earn much interest on your money. 

If you struggle with saving, they can be a good way to develop a savings habit – especially if you opt for a fixed-term savings account or one with a withdrawal limit. While you can receive higher interest on your savings, you’ll have to commit to not touching that money once it’s locked away for the term you’ve agreed to. 

An easy-access savings account lets you withdraw cash when you need to, so can offer flexibility. But they may not be any more worthwhile than keeping your savings in your current account, unless you hold yourself accountable to not touch that money so you can earn interest on it.

There is no right answer as to how much money you should have saved up. Instead, look at your savings as a safety net in case the unexpected happens and you need money to fall back on. 

It’s best to approach saving money as a way to build up good habits, so you can meet your goals and have enough saved as a back-up if you need it.

If you’re looking for a savings account that can give you maximum interest, a fixed-term savings account may be your best option.

Fixed-term savings accounts offer higher interest than easy-access savings accounts, as you’ll be committed to locking away your money for a fixed period of time. With a fixed-term savings account, you’ll be given a fixed interest rate so you know exactly what interest you’ll gain, unlike other savings account offering a variable rate.

Where you keep your money is ultimately your decision and depends what you’re looking for, in terms of security and interest.

If you’re not after a savings account, you could keep your savings in your regular current account. But with this may come temptation to spend rather than keeping your savings separate. 

If you want to put money away so it can grow, you might also consider investing in stocks and shares rather than keeping it in a savings account. But do bear in mind that investing carries a certain risk, as there is a chance you could lose money on your investment. So, investing in stocks and shares is generally a better option for those who are less risk-adverse.

A savings account is a safe place when it comes to putting your money away. This is because all UK-regulated savings accounts and cash ISAs in banks, building societies and credit unions are covered by the Financial Services Compensation Scheme (FSCS.)

This means if your bank collapses and you lose your money, you can receive up to £85,000 per person, per financial institution. This protection scheme also covers mortgages, insurance and investments. 

A savings bank account is a type of deposit account held by a bank, building society or other institution. You can deposit money into your savings account regularly (some will ask that you put money into the account monthly) and over time you’ll gain interest on your balance.

There may be a limit on how many withdrawals you can make or a minimum amount you’ll need to put into your savings account monthly. With that in mind, savings accounts are ideal for developing a savings habit and for their safety and reliability when it comes to saving money.

Having multiple savings account isn’t a bad thing. It can help you meet your savings goals by splitting out your money into different places.

Some reasons for having multiple savings accounts include:

• Having multiple savings goals: If you’re saving for different things, having separate savings accounts is a logical approach to saving money. Putting money away for your wedding, or your child’s university fund? Having separate accounts for each saving goal is a great way to manage your savings and gain interest on them separately
• If your bank fails: You’ll only be covered up to £85,000 per person, per bank account, by the Financial Services Compensation Scheme (FSCS). If you have more than £85,000 saved, it may be worthwhile to spread out your savings into multiple accounts, so you’ll be covered
• Receiving multiple perks: Different account providers may offer you perks for banking with them, from insurance to railcards. So, it may be worth having various accounts with different providers, to receive the best freebies!
• Making unexpected withdrawals: Having one bank account may come with its risks. If the unexpected happens and you need access to your savings, you could find yourself paying a fee or needing to wait to access your savings. By splitting out your savings into more than one account, you can have access to some cash if you need it

Different types of saving accounts will come with different deposit limits. For cash ISAs, the maximum amount of money you can deposit into your account tax-free is £20,000 for the year 2020/2021, but this may change annually. For other types of savings account, your maximum deposit may vary.

It’s worth noting that the maximum amount you’ll be covered for by the Finances Services Compensation Scheme is £85,000 per person, per account. So, if your savings exceed this limit, it may be worth splitting your savings out into multiple accounts to make sure you’re protected if your bank, building society or credit union goes into administration.

It’s difficult to say what would happen if interest rates turned negative, as it’s an unlikely scenario for UK institutions. But there are UK euro bank accounts that have stopped paying out interest and started to charge a fee for saving with them. This is effectively a negative interest rate and can leave savers questioning the need for a savings account all together. 

Remember the Financial Services Compensation Scheme in this instance, that cover you for £85,000 per person, per account. You wouldn’t get that level of protection if you kept your savings under your mattress! If you’re concerned about negative interest rates, you may consider locking your money away in a fixed-interest savings account to avoid fluctuating rates - as long as you’re happy to leave that money inaccessible for a set period of time.

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