Perhaps you’re looking to build up a savings pot to buy a new car. Maybe you want to put money aside for a house deposit. Or perhaps your eye is on the long term and saving for your retirement.
Your reason for saving will affect what type of savings account you pick, as will how much money you have to start, the ease of saving regularly and how quickly you need to access your money. Of course, whoever you end up choosing to save with, you’ll want to know your money is protected.
This guide will go through the options to help you choose the best savings account for you.
How do you choose the best savings account for you?
There is no definitive answer to this question as it depends on the individual and their reasons for opening an account.
Whatever the reason, your choice of savings account should be influenced by your financial plans and goals, and while providers offering the highest interest rates always jump out, there are other factors to take into account that may prove more valuable to you overall.
Let’s look at a few scenarios to help you decide:
1. Saving for a purchase in the near future
If you need money to pay for a specific purchase or a holiday or event in the near future, for instance, your money is unlikely to stay in your savings account long enough to see any significant returns.
The best savings accounts in these circumstances might be easy access accounts, which allow you to access your savings when you need it rather than higher interest accounts where you have to leave your cash locked away or pay a penalty fee to access it at short notice
Some accounts pay interest monthly rather than annually, which might be a better solution if you’re planning to save for less than 12 months. Make sure there is no minimum withdrawal period, or you’ll either have to leave your cash locked away or pay a penalty fee to access it.
And if you want to start your savings pot from scratch, there are accounts available which can be opened with a low minimum deposit – even as low as £1.
To get into the habit of saving and giving you the chance to build as big a savings pot as possible over a limited period, you’ll also want to deposit money regularly. Savings accounts designed for regular savings and that you can easily manage online will be helpful here.
2. Saving a larger amount or major goals
If you’re saving for something a little larger over a few years, such as a house deposit or a new car, the best option may be a fixed-term account. These let you maximise your returns on larger deposits by locking them away for a fixed period at a higher interest rate.
Often available for one, two, three or even five years, these normally offer higher rates of interest because you have guaranteed you’ll lock your money away.
A higher interest rate will give you better returns, but you can also take advantage of individual savings accounts (ISAs), which are tax-free on the interest you earn on a balance of up to £20,000.
A lifetime ISA offers a bonus of up to £1,000 per year, and is specifically aimed at first-time homebuyers or those looking to save towards retirement. Lifetime ISAs have specific rules, and penalties can apply if you withdraw cash other than to purchase a first home or after the age of 60.
For those building up large deposits, don’t stash more than £85,000 in any one account – the amount that is guaranteed by the Financial Services Compensation Scheme (FSCS). If your total savings are higher, consider spreading them between more than one account.
3. Saving for the long term
If you don’t have an immediate goal in mind, but want to save for you or your family’s future, then the right savings account is important here too. Accounts with higher interest rates, including tax-free fixed-rate ISAs should be considered, because the higher the interest rate, the higher percentage return on your money you will get.
The accounts with the very best interest rates often ask you to lock your money away for between one and five years. You will be able to access it if you really need to, but doing so will forfeit a portion, or all of the interest. Cash ISAs, meanwhile, allow you to skip the income tax that would be charged on interest from balances of up to £20,000.
If you’re not sure whether you might need to access the money, factor this into your thinking. Life can be uncertain, so don’t lock all your savings away if you think you might need them.
Make sure you save your money with a savings account provider that is covered by the FSCS, and if you have more than £85,000, look to spread it across different banks or building societies so it’s protected.
When you are thinking about the long term, you should also consider other ways of saving. Investments, pensions, bonds, offset mortgages and even planning for inheritance tax through trusts can come into the picture as we move through life.
How do I calculate my savings growth?
Our savings calculator will show you how much you will need to put by every month and long it will take you to reach your goal – whether that’s to save enough for a new car, house deposit or wedding, for example.
You can find out more about how interest rates work with our guide to how your returns are calculated.
Other important factors when deciding on the best savings account
- Is monthly or annual interest better?
Check the terms of your account to find out. If you plan to only save for a short period then you might want to consider an account that pays monthly interest. If it’s all about building as big a pot as you can, then those that pay annually will generally – but not always – provide a better return
- Should the amount of savings affect my choice of account?
It can make a difference to what type of account you choose. If you have a small amount then you might want to look for accounts with a low or £1 minimum deposit to open. If you have more than £85,000 to save, then you should spread your savings between institutions because under FSCS rules it is only the first £85,000 that is protected should the bank of building society run into financial difficulty
- How readily do you need to access your cash?
Notice periods to allow you to withdraw funds vary from immediate access to a few months to the length of the agreed fixed term. You should research this before you open any account. Ask yourself what you would do for money if, for example, you had to pay for emergency car repairs or if lost your job. If you’d need the money fast, then an easy access account that doesn’t tie them up for an extended period may be better for you even if it pays a lower interest rate
- Which bank has the best customer service?
While banks that offer the highest interest rates may be tempting, you should also look at those that score well for customer service. Depending on how you want to manage your account, seeing whether you can log-in online or download an app can also be useful
- How much risk is there with a savings account?
Typically, savings accounts with well-known banks and building societies are deemed low risk. Your savings are protected up to £85,000, and if you have more stashed away you should spread it between institutions. However, they might also offer low returns, and those less risk averse might prefer to look at other investments, such as stocks and shares where capital is at risk as investments can go down as well as up
- What tools and features are on offer?
Practically every bank has an app these days, and some are even based on apps. You can use these to check your balance and make transfers, but some banks offer other functions to help you save, including ways to set goals and monitor progress. If you want help saving, it’s worth checking out the banks with the best savings apps
Compare savings accounts
Finding a savings account that is right for you is easy with MoneySuperMarket. There’s a lot of information to consider, but once you’ve decided which features are most important to you, you can sort the type of account by easy access, fixed rate or ISA, and then compare the interest rates, notice period and minimum and maximum deposit before you make your decision.
Once you've made your choice, you'll be directed to the provider, which will help you through the rest of the process.