Choosing a savings account depends on your situation and what matters to you, and there are several factors to weigh up in the process. This guide explains the different types of accounts to suit your savings needs.
You want to protect your savings in case the bank was to fail
The risk of losing savings is minimal, however in the unfortunate event that your bank was to go bust, any amount above £85k is at risk.
Some people spread their cash across a selection of banks to get FSCS protection and reduce the risk. You can gain protection from any bank authorised by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).
You don’t want your interest rate to change
Banks may change your saving rate depending on their circumstances and it’s worth bearing in mind they can fall as well as rise.
Going for a fixed term deposit is the best option to ensure your rate doesn’t drop. A fixed term account of six months will lock in a rate for the whole time-period and give you peace of mind.
You want to grow your ‘rainy day’ fund
If there’s one thing many of us have learnt over the past few years, it’s that having a rainy-day savings fund is a smart idea. But rainy days, by their nature, are usually unexpected – so having the money within reach is necessary when considering a savings account.
Opting for an instant access account will allow you to withdraw your money immediately (without cost) to cover any urgent expenses. The trade off for accessible cash tends to be lower rates, but it beats earning nothing at all in a current account.
You have received a large sum of money
If you received a windfall or lump sum, chances are you’re not ready to spend it all right away. If you’re prepared to tie it up for six months to five years, a fixed term account should pay you the highest interest. Generally, the longer the term, the more you’ll earn. But take note of the maximum deposit amounts as they vary.
You are saving for a wedding or house deposit
A notice account – sitting in between a fixed term and instant access – will give you the flexibility to access your money sooner than a fixed term, but at a better interest rate than a high street account. You won’t have to tie your money up for too long, but your rate could change before the notice period is over.
You are planning for retirement
The most popular way to save for retirement is with a pension, but it’s not the only way you can save for this long-term goal. Some savers also decide to open a tax-free ISA or a fixed term account to give their cash a boost, particularly if they have a lump sum.
You may be able to lock up your money for years depending on when you retire. There are several choices of savings accounts that will offer competitive rates over terms of two, five and seven years.
You need to dip into your cash or withdraw it soon
If you want to access your money as and when you like, choosing an instant access or easy access account is a good option as it allows you to withdraw without a penalty. You might deposit some money in an instant access account when interest rates are rising, so you can easily switch accounts to better rates.
It is possible to have multiple savings accounts at one time – think of them as different savings pots for different goals. By opening several accounts, it can help maximise interest, increase protection, and support your financial future.
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This article is not advice. If you would like to get advice on your savings and investments, consider speaking to Financial Adviser.
