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Types of savings accounts

There are four main types of savings account: instant access, notice accounts, regular savings accounts, and fixed term savings accounts. Generally, the longer you are able to lock your money away for, the higher interest rate you’ll be offered, although this isn’t always the case.

Choosing the right savings account for you will depend on how long you want to save for and how much access you need to your money.

Instant access savings accounts

This is the simplest type of savings account, and you can access the money that you’ve deposited at any time.

Instant account providers sometimes provide a debit card so you can make withdrawals from an ATM, while others allow over the counter withdrawals or online transfers.

Because access is instant, this type of account may be a good place to keep your emergency or "rainy day" fund.

You should check whether the rate that you are offered when you open the account is just on an introductory basis. If so, make a note of when the introductory period ends so you know when the interest rate is likely to drop, and when that happens shop around to make sure you still have the best deal.

As you've got instant access to your savings when you need them, the rates on these accounts tend to be lower than those offered on fixed term or notice accounts. Current accounts sometimes offer higher rates of interest on in-credit balances, with similar levels of access, so make sure you compare these too.

Tax-free savings with a Cash ISA

UK Income Tax is usually payable on interest earned on savings, unless they’re held in an ISA.

A Cash ISA allows you to save up to a set amount tax-free each year, this set amount is called your “ISA allowance”. For the 2016/17 tax year the allowance is £15,240. Cash ISAs can be fixed rate, instant access or regular savings accounts.

Find out more by visiting our guide to Cash ISAs.

Notice savings accounts

Notice savings accounts tend to offer slightly higher interest rates than easy access savings accounts, but you’ll have reduced access to your money.

Before you can access money held in a notice account you’ll need to give notice of your intended withdrawal. The notice period is often 30, 60 or 90 days.

In an emergency, some accounts will allow for short notice withdrawals – but these may incur penalty fees, so check the terms. You could also keep a separate amount in an instant access account to cover emergencies.

Regular savings accounts

Regular savings accounts usually offer a better rate of interest than easy access or notice accounts.

One of the defining features of a regular savings account is that you need to make regular deposits, usually without fail over a fixed period to qualify for the interest. These regular payments usually have a minimum and maximum amount. If you don’t meet the terms you could lose the interest rate for the entire year.

You should expect to receive around half the actual amount of interest of the headline rate. This is because interest is calculated monthly. For example, if you pay £50 into a 6% regular saver for 12 months, you will have paid in £600 but you won't receive 6% on that full balance as it builds up over time.

Levels of access will vary between accounts and many will limit the amount you can withdraw, if you can make withdrawals at all. This type of account can be a good way to get into the habit of regular saving, and earn extra interest in the process. For the best rates, many require you to be an existing current account customer.

Fixed rate bonds

Fixed rate bonds offer a fixed interest rate over a pre-determined period of time, but you'll need to be prepared to forego access for the term of bond.

The term is usually between one and five years, and longer terms usually offer higher interest rates.

During the fixed term of the bond, you probably won't have any access to your money, or if you can access the it, withdrawing early could result in a charge.

Keeping some money in a separate instant access savings account may be useful for emergencies.

Structured deposits

Structured deposits offer variable returns that are linked to the performance of an underlying asset such as market indexes, equities, interest rates, foreign exchange, or a combination. They are more complex than other cash-based deposits such as fixed rate bonds and Cash ISAs.

Structured deposits are designed to repay your original deposit at maturity but returns are linked to the performance of investments, so you may not get back more than you originally paid in.

For more information, read our guide to structured deposits.

Protection for your savings

If the financial institution you choose to bank with is UK based and registered with the FCA, your savings should be protected, up to certain limits, by the Financial Services Compensation Scheme.

Compare savings accounts

Shopping around is essential if you want to get the best possible interest rate for your money at a level of access that suits you.

Last updated: 06 April 2016

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