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There are hundreds of different savings accounts to choose from, but shopping around for one shouldn’t become a full-time job.
When you look for a savings account, it’s important that you don’t just look at the headline rate. An account offering eye-catching returns, for example, might have a short-term bonus or withdrawal restrictions in the small print that you need to be aware of. You should also look at how your savings will be covered by the compensation schemes.
Here are six tips to help you choose the right savings account for you.
1) What are your savings goals?
Before you start thinking about which type of savings account is likely to suit you, you need to identify your savings goals.
These could be anything from helping your children cover higher education costs to buying a new car, making home improvements, going on the holiday of a lifetime, or perhaps just to provide yourself with a financial buffer in retirement.
Once you’ve decided on your goals, you should think about when you want to achieve them. It may be, for example, that you’re not in any great rush, and have several years to build up your savings. In this case, you might be comfortably tying up your savings in a fixed-rate savings account for a few years. Alternatively, you might have a strict short-term deadline to meet, in which case you might prefer an easy access or regular savings account.
2) Think about how often you’ll need to access your savings
Working out when you’ll need to take money out of your savings can help you determine what sort of account you’ll need.
For example, if you’re trying to build an emergency savings pot that you might need to dip into at any point to cover unforeseen expenses, an easy access account is likely to be your best bet, as you should be able to take money out without penalty at any time. Check the account small print carefully though, as some accounts are marketed as easy access, but restrict the number of penalty-free withdrawals you can make to just three or four a year.
If you’re saving for the long term, or you simply want to make it harder for yourself to make withdrawals, a fixed-term savings account or notice account may be a better option. Bear in mind that with a fixed-term savings account, you may only make deposits into the account for a limited number of days after opening it, so this type of account is likely to be best-suited to savers who have a lump sum to put away.
Boost your savings with 4.32% AER1
Make your money work harder with an OakNorth Easy Access Limited Edition account. For a limited time, you can get access to an even higher interest rate.
1Annual Equivalent Rate correct as of 11 April 2025 and subject to availability. Terms and conditions apply. Minimum balance required for Limited Easy Access account is £20,000.
3) Work out how much interest you’ll earn - and check whether the rate includes a bonus
If you’re comparing several different accounts, the interest rate you should look at is the annual equivalent rate, or AER. This is designed to help you compare accounts that pay interest differently more easily.
Whilst it might seem obvious that you’ll want to pick the account paying the best returns, bear in mind that some of the highest-interest paying savings accounts might include a bonus in the interest rate. Once this runs out, the interest rate could plummet, so make sure you check both the initial rate and what it will be after any short-term bonus finishes, as you may want to move your money to a different account at this point.
If you’re prepared to tie up your savings for a while, you might find you can earn more competitive returns from a fixed-rate savings account, although this isn’t always the case.
4) Will you have to pay tax on your returns?
If you’ve already built up or plan to put away a decent chunk of savings, think carefully about how much tax you might have to pay on your returns.
Under current tax rules, you can earn up to £1,000 a year in savings income tax-free if you’re a basic rate taxpayer, known as your Personal Savings Allowance. This falls to £500 a year if you’re a higher-rate taxpayer, and you get no savings income tax-free if you’re an additional-rate taxpayer.
Many savers assume that they’ll need many thousands of pounds worth of savings to be in danger of earning returns that will breach their Personal Savings Allowance, but you might find you edge over it even with a relatively modest savings balance. For example, if you’re a higher-rate taxpayer and put £11,000 into a savings account paying 4.57% or more, this would see you breach the personal allowance of £500 and be liable for tax on some of your savings interest.
If you’re worried about facing an unexpected tax bill, your best bet is likely to be a tax-efficient individual savings account (ISA). You can pay up to £20,000 each tax year into either a cash ISA, a stocks and shares ISA or an innovative finance ISA which invests in peer-to-peer lending, or you can put your money into a combination of these options, and any returns will be free from both income tax and capital gains tax (CGT).
Boost your savings with 4.32% AER1
Make your money work harder with an OakNorth Easy Access Limited Edition account. For a limited time, you can get access to an even higher interest rate.
1Annual Equivalent Rate correct as of 11 April 2025 and subject to availability. Terms and conditions apply. Minimum balance required for Limited Easy Access account is £20,000.
5) Does the savings provider offer consistently competitive rates?
There’s not much point in going for an account where rates yo-yo every few months, so try and select a savings provider that is renowned for offering consistently competitive rates.
Certain banks and building societies are notoriously fond of hiking up interest rates on their new savings accounts long enough for them to feature in ‘best buy’ tables, then quietly dropping the rate when nobody’s looking. If you’re happy to switch accounts every few months, that’s great, but many of us don’t want the hassle of having to do this. If you regularly scour ‘best buy’ tables and notice that certain providers regularly feature there, their accounts may be worth a closer look.
6) How do you want to manage your savings account?
Many savers prefer the convenience and simplicity of managing their savings accounts online or via an app, as this makes it quick and secure to move their money and review their savings balance at any time of the day or night.
However, there are still plenty of people who’d rather visit a bank branch to discuss their savings with someone face to face, or who need access to a telephone helpline – or who might prefer to operate their account by post.
When choosing your account, it’s therefore important to check how you can manage it, and that the methods offered suit you, as this can make it easier for you to stick to the savings habit and achieve your savings goals.
A final thought…
Whichever kind of savings account you choose, if you’re depositing your money in an account with a savings provider that you perhaps aren’t familiar with, it’s worth checking whether your savings are protected by the Financial Services Compensation Scheme (FSCS).
This is designed to pay savers compensation in the unlikely event that their savings provider runs into financial difficulties. The scheme’s maximum individual compensation payout is £85,000, and if you have a joint account, this doubles to £170,000.
Boost your savings with 4.32% AER1
Make your money work harder with an OakNorth Easy Access Limited Edition account. For a limited time, you can get access to an even higher interest rate.
1Annual Equivalent Rate correct as of 11 April 2025 and subject to availability. Terms and conditions apply. Minimum balance required for Limited Easy Access account is £20,000.