How do I find the best interest rates for a savings account?

Saving money is a smart move, but where you stash your cash matters just as much as how much you save. Finding the right savings account can make a huge difference in how fast your money grows.

Unfortunately, it isn’t as simple as finding the savings account with the highest interest rate (normally referred to as AER – Annual Equivalent Rate). Each savings account will come with different features and terms that will impact the rate at which you save, how you can access your savings and other such factors.

That means, the question actually is – How do I find the best interest rate for a savings account that suits my financial goals and circumstances?

So, if you’re looking to make your money work harder for you, let’s talk about how to find the best interest rate for your savings account, while balancing the other features and terms.

Types of savings accounts

First, let’s understand the different types of savings accounts out there:

Easy/Instant access savings accounts

These are the most flexible savings accounts. You can deposit and mostly withdraw money whenever you want without penalty and can typically open one with as little as £1.

They usually offer lower interest rates compared to other types of savings accounts, but higher interest than current accounts, and they provide easy access to your funds.

They are perfect for emergency savings because you can easily get to your money when you need it, and it still earns you interest while it stays untouched.

Monthly/Regular savings accounts

These accounts are designed for consistent savers. You’re required to deposit a set amount of money each month (typically £10-£500), and in return, you might receive higher interest rates than other types of accounts.

However, there are often limits on how much you can deposit each month and you’re required to make a minimum number of monthly payments (typically 10-11).

Early withdrawals or missing monthly payments can result in penalties and some accounts don’t allow any early withdrawals.

These are ideal if you’re saving for something special in a year’s time, such as a holiday or car. Or if you want to be disciplined in saving a set amount each month within your budget and don’t want to be tempted to spend it. 

Children’s savings accounts

Savings accounts specifically designed for children up to the age of 18, often with competitive interest rates and incentives to encourage saving from a young age. Although, they function pretty much the same as adult ones.

You can typically open one with as little as £1 and children over seven can manage the accounts themselves.

There are both easy/instant access and monthly/regular children’s savings accounts. 

Credit Union savings accounts

Credit Unions provide a community-focused alternative to traditional bank accounts and offer many of the same services, including savings accounts. A Credit Union is owned and run by the members who use their services. Savings are pooled together to lend to one another.

You will normally receive a dividend (yearly pay-out) depending on their profit and the size of your savings, although, some may give fixed rate of interest instead.

You’ll likely be able to open a saving account even if you’ve had difficulty opening one with a bank.

Fixed-rate savings bond

You agree to keep a lump sum of your money deposited for a set period, typically ranging from six months to five years. Usually, you won’t be allowed to add further money once you’ve made the initial deposit.

In return, they guarantee you a set interest rate over a specified term (most savings accounts pay a fixed amount of interest). So, you’ll know at the start exactly how much you’ll get when the term of the account ends.

You might not be allowed to withdraw money before the end of the set period, or there may be hefty penalties.

Since your money will be locked away for a notable amount of time, it’s particularly important that the interest rate is above inflation.

Notice savings accounts

Notice savings accounts require you to give advance notice, usually between 30 to 180 days, before withdrawing money.

Cash ISAs (Individual Savings Accounts)

Cash ISAs are tax-free savings accounts where you can save up to a certain limit each tax year without paying income tax on the interest you earn. Although, if you’re a basic-rate taxpayer, you won’t have to pay tax on the first £1000 of interest you earn anyway (this is called your personal savings allowance (PSA)).

There are different types of Cash ISAs, including easy/instant access, monthly/regular, fixed-rate, and stocks & shares ISAs, each with its own set of rules and benefits.

Lifetime ISAs (LISAs)

These are specialised savings accounts aimed at helping first-time homebuyers or individuals saving for retirement. The government provides bonuses on contributions made to these accounts, subject to certain conditions.

So, finding the best interest rate is about more than finding the highest AER. It’s important to compare:

  • Interest rates – referred to as AER
  • When you can access the money – are there costs/penalties associated with taking money out?
  • How much you can put in, and how often – is there a minimum or maximum amount that will affect what you want to save?
  • What you are saving for – this will help prioritise what features are most important for you
  • Terms and conditions – understand any other special conditions

Three top tips

Shop around

Don’t settle for the first savings account that you come across. Take advantage of comparison websites and tools that let you see multiple offers at once. Remember, a little time spent researching now can pay off big time later.

It is important to make sure the account provider is covered by the Financial Services Compensation Scheme (FSCS). Under the FSCS, if your provider collapses, you’ll be able to recover your savings up to £85,000. Most UK high street banks, building societies and credit unions are, but it’s worth double-checking. 

Understand your savings goals

Consider what you’re saving for and the features that will best help you achieve them. Are the savings for the short-term or long-term goals? Is flexibility important or are you seeking the highest interest rate and don’t mind extra restrictions?

Keep an eye on the small print

Ah, the fine print – the part of any financial agreement that’s easy to skim over but oh-so-important. When comparing savings accounts, pay attention to the terms and conditions. Look out for the rules around making deposits and withdrawals, if the interest rate is variable or limited for an introductory time, and whether you’re required to also have a current account with the provider.

Armed with these tips, you’re ready to hunt down the best interest rates for your savings account like a pro. Remember, finding the right savings account isn’t just about the interest rate; it’s also about finding an account that aligns with your savings goals and budget. So, take your time, do your research, and watch your money grow.

If you’re new to saving, you might find our article on tips on how to can start saving and keep it going helpful.

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