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Bank and building society savings accounts

About banks and building society savings accounts

If you're thinking about putting aside some money for a rainy day, a popular option is to put it into a bank or building society account.

There are hundreds of different savings accounts on offer and it can be difficult to know which one to choose.

Choosing the right one will depend on your circumstances. There are lots of different types of account and some will be better suited to your circumstances than others.

For example:

  • easy access accounts are designed for people who want to be able to get hold of their money quickly – although they offer lower interest rates than other types of savings account
  • regular savings accounts are designed for people who can put money aside on a regular basis but don’t want to tie their money up for a year or more
  • fixed notice regular savings accounts are designed for people who want to earn higher interest rates and don't need to get at their money in a hurry.

On this page, we tell you about some of the different types of savings accounts available and help you to work out which one might be right for you.

What you won't find on this page is a comparison of individual accounts offered by different companies. To find this kind of information, you will need to look at one of the account comparison websites listed under Further help.

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Why save with a bank or building society?

With a bank or building society account, you pay in your money and in return for keeping it there, you get a small reward. This is known as interest. Interest can either be fixed or variable. If the interest is fixed, it will stay the same over a certain period of time. If the interest is variable, the interest you get can go up or down.

A bank or building society account is a safer way to save because you are guaranteed to be able to get back at least the money you put in. If the bank or building society goes out of business, you are guaranteed to get back all the money you put in, up to a maximum limit of £85,000.

Banks and building society accounts are usually better if you are saving for the short-term, rather than the long-term. This normally means a period of less than five years.

This is because you might need to get hold of your money quickly and it's easier to do this through a bank or building society account than if you invest it in the stockmarket.

However, if you put your money into a bank or building society account for a long period of time, the interest you earn on your savings may be less than the increases in the cost of living. This is known as inflation. When inflation is taken into account, you could end up with less money than you started with.

If you want to save money for the long-term, it might be better to invest it in the stockmarket, rather than put it into a bank or building society account.

For more information about investing in the stockmarket, see Investing in the stockmarket.

Investing in the stockmarket is a riskier way to save because it's possible to lose money rather than make it. If you are really unhappy at the idea that you could lose money, you may want to stick with bank and building society accounts.

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Choosing a bank or building society account

Before choosing a bank or building society savings account you will need to compare the different accounts on offer very carefully and think about what best suits your needs.

You will need to look at the terms and conditions of the accounts, as well as interest rates. Some things to look out for are:

  • is there a limit on how long the interest rate lasts for? Some interest rates may seem attractive but don't last very long and you get moved to a less attractive rate
  • when you're comparing interest rates – make sure you're comparing like for like. The simplest way to compare savings accounts is to look at the Annual Equivalent Rate (AER). This is interest rate the account is paying and the way it is calculated means you can compare different accounts. However, the AER does not include any special bonuses an account may offer to encourage you to save
  • are there any penalties if you withdraw your money early or make more than a certain amount of withdrawals in any one year?
  • are there any restrictions on the way you can manage your account? For example, is it a postal or internet-based account?

There are a number of price comparison websites which list all the available accounts and allow you to compare rates and terms and conditions. For more about these websites, see Further help.

Once you have opened a savings account, you should check the price comparison websites regularly to make sure you're still getting the best rate you can. If you find there are better rates elsewhere, you should seriously consider moving your money.

Postal, telephone and internet accounts

When you're choosing a bank or building society savings account, look out for any terms and conditions which restrict the way in which you can manage your account.

With some accounts, you can only carry out certain transactions by post, over the telephone or the internet. These accounts can seem attractive because they often offer better interest rates than similar branch-based accounts. But if you're not happy using the internet or prefer to talk to someone face-to- face, you should think carefully before signing up to an account like this.

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Easy Access Accounts

Easy access accounts can also be called instant access accounts. They are a convenient way to save if you want to get hold of your money quickly because you can take it out whenever you like.

The main disadvantage of easy access accounts is that the interest you earn on your money is usually lower than other savings accounts, where you agree to leave your money in for a certain amount of time without touching it.

Another disadvantage of this type of account is that they can discourage you from saving more because it's so easy to take out your money whenever you want to.

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Notice Accounts

Some accounts will pay a higher rate of interest if you agree to give the bank or building society advance warning that you want to take your money out.

A typical notice period can range from between seven and ninety days. Usually, the more notice you have to give, the higher the interest rate you will get.

If you don't give the right amount of notice before you take your money out, you might lose some of the interest you have earned. You can choose to save regularly or put a lump sum into a fixed notice account.

If you open one of these accounts, make sure you check the rate you are getting regularly. You might need to switch your account to make sure you are always getting the best deal.

For more information about notice accounts, go to the Money Advice Service website at: www.moneyadviceservice.org.uk.

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Regular Savings Accounts

If you have money to save on a regular basis, you should think about opening a regular savings account. These accounts give you a higher rate of interest than if you are only able to pay money in occasionally whenever you have extra to spare. You usually have to pay in between £10 and £500 a month. You could also get a small additional bonus for saving every month. However, if you miss payments or take out your money early, you might lose some of the interest you have earned.

Regular savings accounts can be worth considering if you want to be disciplined about saving but don’t want to tie your money up for a year or more.

They are available through most banks and building societies, and some are internet or postal based. Accounts may have ‘regular saver’ in their name but others won’t, so check the small print to find out whether you will get extra interest if you save regularly.

Regular savings accounts may also be easy access or notice accounts.

The best rates of interest change frequently, so use a comparison website to find out which accounts are paying the top rates. Once you have opened your account, check that your rate doesn’t go down. If you want to change accounts, make sure you won’t lose interest if you try to take out your money early. To find out more about comparing regular savings accounts, go to the Money Advice Service website at: www.moneyadviceservice.org.uk or www.moneysavingexpert.com.

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Fixed Notice Regular Savings Accounts

Fixed notice regular savings accounts can also be known as High Interest savings accounts. These accounts give you a higher rate of interest in return for leaving your money in for a fixed amount of time (or term). This is usually for at least a year. Some accounts will pay even higher rates of interest if you keep your money in for two or three years.

You might want to think about one of these accounts if:

When you open a fixed notice regular savings account, you may be asked to open another account at the same time. This is known as a feeder account. You will need to pay money into the feeder account first and then transfer regular amounts into the fixed notice account. You won't get a guaranteed rate of interest on your feeder account so you need to check that the interest rate paid on the fixed notice account is high enough to compensate for your money being kept in the feeder account at a lower rate of interest.

You can sometimes use your current account as a feeder account if your savings account is with the same bank or building society. If you have to open a separate account, check what interest rate you will get on the money in your feeder account.

Before you open a fixed notice regular savings account, think about what could happen if you tie up your money up for a long period of time. If interest rates go up, you might suddenly find the rate you're getting is a lot lower than what other accounts are paying. But you won't be able to move your money until the end of the fixed term and the value of your savings might go down.

If you are a tax payer, it's worth comparing the rates you can get on a fixed notice regular savings account with those paid on a cash ISA. You won't have to pay tax on the interest you earn from a cash ISA and you can usually get hold of your money more easily too.

For more information about ISAs, see Individual Savings Accounts.

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Monthly income accounts

If you want an income from your savings, you can choose a savings account which pays you interest on a regular basis, often monthly. Interest is usually paid at a variable rate. This means it can go up or down, depending on the rate your savings provider is offering.

Some accounts also offer a guaranteed rate of interest which is usually the same as or just above the Bank of England’s base rate. This means that your savings won’t lose their value.

Monthly income accounts are often aimed at older savers who are more likely to need an income. This means you may need to put in a large lump sum (£500 or more), be over 50 or agree to have your pension paid into the account to get the best rates.

Many accounts are easy access, so you can draw your money out whenever you want. However, you should check how many withdrawals you can make a year. Some accounts pay a bonus, which you can lose if you keep taking out your money.

There are other types of monthly income accounts called monthly income bonds. These are provided by NS&I. For more about these, see Savings bonds.

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Further help

On Adviceguide

The Money Advice Service

The Money Advice Service is a free, independent service. Their website has lots of useful information about financial products, including comparison tables. Go to: www.moneyadviceservice.org.uk.

National Savings and Investments

National Savings and Investments offer a number of financial products which are guaranteed by the Government. They are available through the Post Office, online and by phone. For more information, go to: www.nsandi.com.

Independent financial advice

For help in finding an independent financial adviser, contact one of the following organisations:

Independent Financial Promotions (IFAP)

Website: www.unbiased.co.uk

Institute of Financial Planning (IFP)

E-mail: enquiries@financialplanning.org.uk
Website: www.financialplanning.org.uk

Personal Finance Society (PFS)

E-mail: customer.serv@thepfs.org
Website: www.findanadviser.org

Moneysavingexpert website

The money saving expert website has lots of useful financial information, including price comparison tables for different savings accounts. Go to: www.moneysavingexpert.com.

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Citizens Advice

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