Finding the best savings account
There’s no shortage of savings accounts if you’re keen to squirrel away some of your hard-earned cash for the future. But you don’t want to lose out by choosing the wrong one. Here we show the best savings accounts for various savings goals.
The squeeze on household finances due to the rising cost of living is hardly welcome. But it does offer a good reason to review your savings options. After all, at some stage, you may need a pot of cash to draw on for a holiday, a home deposit or a comfortable retirement.
What types of savings accounts are there?
The range of savings options available means there is a viable home for your cash whatever your circumstances. You just need to be aware of the pros and cons of each type of savings account.
Instant or easy access savings accounts
The difference between easy-access and instant-access accounts is that with the former there’s usually a delay of a few days before you can make a withdrawal.
What they share in common is both allow you to make cash withdrawals when you need it, without facing any fines.
Pros:
many can be opened with as little as £1
quick access to cash makes them good for building up an emergency fund, as well as helping towards the cost of Christmas or a holiday, for example
Cons:
interest rates on savings, the Annual Equivalent Rate (AER), will be lower than many other options due to the flexibility of being able to make free withdrawals
accounts are "variable", meaning the AER can fall when the introductory rate term ends
some accounts place a limit on the number of withdrawals you can make each year
Best easy access accounts
The following are the best easy-access accounts as of 23 September 2022:
Ford Money Flexible Saver pays 1.95% AER
Atom Bank Instant Saver pays 1.9% AER
Get the freedom you need to start saving.
Best regular savings accounts
With regular savings accounts, you commit to depositing at least a minimum amount into your account each month. In return, you can expect an interest rate that beats what’s offered on easy-access accounts.
Pros:
regular payments provide a good way to build up savings for holidays, a new car or a wedding, for example
you may be able to make one or more withdrawals per year without incurring a penalty
not all accounts require monthly deposits, providing flexibility
Cons:
you only earn the headline AER on what you save, not on the total invested. If you open an account paying 2% AER and deposit £100 a month for 12 months, you’d initially earn 2% on £100, 2% on £202 a month later and so on.
the headline interest rate typically drops after a year
other options could be better if you could need to make withdrawals or want to make a large lump-sum deposit
Best regular savings account
The following are the best-paying regular savings accounts available as of 23 September 2022:
Royal Bank of Scotland Digital Regular Saver pays 5.12% AER (you must hold a current account with RBS)
Darlington Building Society Regular Monthly Saver pays 2.5% AER
Fixed-rate savings accounts
With fixed-rate savings accounts or bonds, your money’s locked away in an account for a period, typically six months to five years.
In return, you’ll get a guaranteed interest rate for the duration, which is usually better than those offered elsewhere. This explains why they’re considered among the best savings options for a house deposit, retirement and other big outlays.
Pros:
as the interest rate is guaranteed you know exactly what you’ll have earned at the end of the term
higher interest rates are typically offered as you have less flexibility than with other savings options, and you can usually save more
as with other accounts, savings of up to £85,000 are protected by the Financial Services Compensation Scheme (FSCS)
Cons:
given you can’t touch your savings (without incurring hefty penalties), you’d need to be confident that you’ll have no need to touch it
many bonds will allow you to save up to £1,000,000, which is much more than the limit protected by the FSCS
interest rate rises could erode the value of your savings
Best fixed-rate savings accounts
If you wanted to deposit at least £1,000, the best paying fixed-rate accounts at the time of writing are:
Best 1 year fixed rate account: United Trust Bank 1 Year Personal Deposit, 3.55 % AER (max saving £5,000,000);
Best 2 year fixed rate account: Atom Bank 2 Year Fixed Saver, 4% AER (max saving £100,000)
Best 5 year fixed rate account: United Trust Bank 5 Year Personal Deposit Bond, 3.8% AER (max saving £100,000)
Notice savings accounts
Notice accounts are more flexible than fixed-rate savings accounts because although your money is locked in for a predetermined period, you can make withdrawals providing you give notice.
Pros:
regular deposits are usually allowed
access to your savings, but without the temptation to make impulse withdrawals
offer a viable long-term savings vehicle for pricy goals, such as a wedding or home deposit
Cons:
the notice period can be as much as 120 days, making these accounts unsuitable if you might need emergency cash
withdrawal penalties can wipe out any interest earned
interest rates may be lower than those offered elsewhere
Find the notice savings account that's right for you.
Best notice savings accounts
At the time of writing, the best-paying notice account if you want to make an initial deposit of £1,000 is:
FiPersonal Savings Allowance
If you’re a basic-rate taxpayer the first £1,000 of interest you earn on savings is tax-free (the limit is £500 for higher-rate taxpayers). Of course, a basic-rate taxpayer would need more than £100,000 in savings earning 1% before exceeding their Personal Savings Allowance and facing a tax bill. But it’s worth considering should interest rates rise.
Cash ISAs and savings
It’s a similar story with Cash ISAs. These often pay lower rates of interest than equivalent savings accounts, for example, the best five-year fixed rate ISA is from Yorkshire Building Society 3.50% Fixed Rate e-ISA to 31/10/2025. However, if interest rates rise, the tax benefit could become more relevant than the difference in interest paid.
Earn interest tax free with a cash ISA.