Here are the top five easy access savings accounts we found, as of the date of this article. Bear in mind that savings rates are changing fast, so always carry out a fresh search when you are ready to find a home for your cash.
Is savings interest taxed?
Technically, yes, savings interest is taxed. But everyone has both an annual Personal Savings Allowance (PSA) and an ISA allowance which means the vast majority of savers (an estimated 95%) do not pay any tax on the savings interest they earn.
What is my Personal Savings Allowance?
The government introduced the Personal Savings Allowance in 2016. The PSA allows you to earn an amount of interest each year without paying tax.
For basic rate taxpayers (20%), the tax-free threshold is £1,000 in interest per annum. For higher rate taxpayers (40%), the interest limit is £500 per annum.
Additional rate taxpayers (45%) don’t get a Personal Savings Allowance which means all interest they earn from savings is potentially liable for tax.
Is my money safe in a savings account?
Money saved in banks and building societies regulated by the Financial Conduct Authority (FCA) is protected up to £85,000 per person per institution by the Financial Service Compensation Scheme (FSCS).
For joint accounts it’s £170,000.
FSCS protection means that if the bank or building society goes bust — you’ll get your money back to the stated limit.
How much can I save in a savings account?
Each savings account will have a minimum and maximum deposit. Minimum deposits can be as low as £1 for easy access savings accounts, but tend to be higher (£1,000 or above) for fixed rate savings accounts. Maximum deposits vary all the way up to £1m or £2m.
How can I open a savings account?
The vast majority of savings accounts can be opened online. But if you’re not tech savvy, there are still some that you can open in a branch, by post or over the phone.
Some accounts from digital banks need to be opened on the app and operated via mobile banking.
How is interest paid?
The interest you earn can be paid either monthly or annually depending on the account and provider. Sometimes you can choose.
You may also be able to choose if interest is paid back into your savings account or into a linked current account (which doesn’t have to be from the provider).
If interest is paid monthly into the savings account, any compounded effect will be reflected in the AER.
What are ‘gross’ and ‘net’ interest?
Gross interest is the annual interest you receive on your savings before tax. Net interest is after tax.
If you don’t pay interest on your savings due to using your PSA and ISA limits, gross and net interest will be the same.
What is an ‘expected profit rate’?
Islamic banks which offer savings accounts will advertise an expected profit rate, not an interest rate. This is because earning or paying interest is prohibited in Islamic law.
In effect, an expected profit rate is the same as interest and so far there’s not been a case of an ‘expected’ rate in the UK not paying as predicted.
What other kinds of savings accounts are there?
There are several types of savings accounts available and the right one for you will depend on whether you need instant access to your cash and how much money you have to put away.
Notice savings accounts:
Notice accounts don’t give you instant access to your money — you have to tell the bank or building society in advance when you want to take money out.
Notice periods are typically 30, 60 or 90 days. Interest rates can be higher on notice accounts than easy access accounts, but you can’t get to your money quickly.
Fixed rate accounts:
With a fixed rate savings account (or ‘fixed rate bond’) the interest rate is fixed for a set period of time. This can be anything from six months to seven years. However, fixed rates of one, two, three or five years are most common.
Interest rates are higher on fixed rate accounts than easy access or notice accounts, but the downside is you have to commit to leaving your money in the account for the length of the fix. For example, with a five-year fix you won’t be able to get your money for five years.
Cash ISAs:
Every adult in the UK can save up to £20,000 in an ISA each year and not pay tax on the returns generated.
In the past this meant that a cash ISA was the ideal place to start saving.
But the introduction of the Personal Savings Allowance (PSA) ,which lets you earn a set amount interest on your savings without paying tax on that interest, has lessened the appeal of cash ISAs.
However, ISAs can still be a tax-efficient option for people with high levels of savings. Cash ISAs can be easy access, notice or fixed.
Regular savers:
Regular savings accounts require savers to deposit money each month up to a pre-set limit, normally £250 or £300.
The interest rate on offer can be fixed or variable and is normally higher than the rate paid on easy access accounts.
These accounts typically last for one year with restrictions about when you can withdraw your money.