Savings explained

There’s a lot of jargon surrounding saving and a lot of different ways to save, making it difficult to understand which method is best for you.

There are a few factors that will affect what kind of saving account suits you including whether or not you pay tax on the interest, how likely you are to need to access the money and how long you are prepared to lock your money away. So keep these things in mind when exploring the options below.


Cash ISAs

Pros

  • The huge benefit of cash ISAs is that they generate interest tax-free. If you save more than £1,000 a year (or you think you might) you might have to pay tax on the interest earned from those savings.

Cons

  • There’s a limit you can put in a cash ISA each year which is currently set at £20,000.   

Easy-access savings 

Pros

  • The name gives it away, easy-access savings allows you to withdraw your money quickly and easily.
  • Some easy-access accounts come with a card that can be used to take money out, some offer over-counter withdrawals and lots of them let you transfer money out online. 

Cons

  • Easy-access accounts may llimmit the number of withdrawals you can make each year without loosing interest, so remember to check. 
  • The withdrawals might not be immediate and they might take a few days to go through. 

Notice accounts

Instead of having quick access to your money, saving in a notice account means you have to tell the provider in advance that you want to make a withdrawal. The notice you have to give varies from 30 to 90 days so these accounts are unlikely to suit you if you need to get to your savings unexpectedly or quickly.

Pros

  • Notice accounts are beneficial because the strict rules mean the interest rate is usually higher.


Cons

  • In the past, notice accounts have offered higher interest rayes than instant-access deals but this isn’t always the case.
  • Make sure you check if they are worth opening as you could get the same return without restricting your access to it. 

Regular savers

Pros

  • This means you need to commit to depositing money each month, without fail. This is great if you want to save regularly as there’s often not a minimum contribution meaning you can start small.
  • These accounts typically last for one year so great if you have a year-long savings goal. 

Cons

  • Providers will limit the number of withdrawals you can make each year
  • Check whether you need to open a current account first

Fixed-rate bonds

Fixed-rate bonds are savings accounts that offer a fixed interest rate on your cash for a set period of time. While they often come with the highest interest rates, opening one will mean giving up access to your money during the term of the bond. Fixed-rate bonds can extend over one year, two years, even up to five years. 

Cons

  • You’re likely to pay a hefty interest penalty for getting your money out of a fixed rate bond in an emergency. 
  • Many fixed bonds accounts require large initial deposits – so if you’re a beginner it might be better to try a different saving method 

Tax-free help to save accounts 

Pros

  • The help to save scheme is open to workers receiving universal credit (as long as you have a household income equivalent to at least 16 hours a week at national living wage) and working tax credit.
  • You can save a maximum of £50 a month and receive a 50% tax-free bonus after two years, worth up to £600. They can then choose to save for another two years, with a further £600 bonus. 
  • You can continue to save under the scheme even if you cease to be eligible for universal credit. 

Cons

Withdrawals are permitted but this could affect the amount of bonus received when the account matures.