Savings accounts for MAY 2022
Choosing a savings account
Identifying which bank is the best for savings accounts is difficult as there can be monthly fluctuation of rates, especially if the Bank of England is making a base rate change on a regular basis.
By far the most significant factor in persuading people to open a savings account is the level of interest they will earn. This can often result in banks offering introductory or bonus interest rates in order to attract new customers.
In addition to the interest rate, you also need to consider how long you are comfortable with leaving your money tied up for.
Types of savings accounts
Although there are a number of different savings products in the market, there are essentially three types of savings accounts.
Instant savings accounts
These accounts allow you to withdraw some or all of your money instantly but the downside is that they generally offer lower interest rates, which are also variable.
The minimum opening amount is usually extremely low and often just a nominal amount such as £1.
Notice savings accounts
These accounts will require a notice period before you can withdraw funds, for example 30 days. However, on the plus side they often give higher variable rates to make up for it.
There is often a higher minimum opening amount with notice accounts such as £1,000. The account may also stipulate that the balance has to be above a certain threshold in order to qualify for the interest rate offer.
Fixed term savings accounts
As the name suggests, your money is tied up for a fixed period of time such as one to five years. This means that either you can't withdraw your money or there are penalties for doing so.
However, the big advantage with longer term accounts is that they generally offer the highest rates of interest and usually at a fixed rate, so you know exactly what your investment will yield.
A fixed term savings account will likely require a higher minimum opening deposit of £1,000 - £5,000. Interest is usually applied at the end of every year.
Features of savings accounts
According to the latest Bank of England statistics, there are 132 banks incorporated in the UK with about another 159 incorporated outside of the country that are authorized to accept deposits through a UK branch. On top of this you have building societies, credit unions and investment firms.
This means that there is healthy competition amongst these financial institutions to win over new customers and retain existing ones.
To try and help you narrow things down, here are three top features you should compare before filling out that account application form.
It goes without saying that this should be at the top of your list when looking to get a new savings account. The interest rate will determine how much your savings are going to appreciate and should be the starting point for your search.
Banks will state the percentage as the AER (Annual Equivalent Rate). The AER is specifically designed to make it easier to compare interest rates as it offers a truer picture of what you could earn. It does this by assuming you will keep the initial savings amount in the same account for a year and that any interest is added each month to the principal amount. The interest calculation for subsequent months will be based on the principal plus the previous amounts of interest accumulated i.e. compound interest.
The interest rate applied to your account will be one of two types:
A variable interest rate means the bank or building society may alter the percentage during the time your money is sitting in the account. Changes to interest rates don't usually happen that often but may occur if the Bank of England changes the base rate.
A fixed interest rate means the rate will be set in stone for a specific period. This period is determined up front when you open the account and is often one or two years.
One final point is to check how often your interest is actually added to your account. This could be monthly, quarterly or annually. Some accounts give you the option.
Withdrawing your money
It's important to check before you open a new savings account and deposit money, the restrictions applied to the account in terms of withdrawing money.
For example, whilst variable rate accounts are generally more flexible when it comes to getting instant access to your money, fixed rate accounts may require you to give a notice period and you may lose the interest rate offer for doing so.
You should also check to see if the account has limits on how often you can make withdrawals. Some accounts for example only allow a certain number of withdrawals per year whilst some fixed rate accounts don't allow you take any money out unless you are closing the account.
Account management and access
Having the ability to manage your savings account in a way that suits you is important. This includes how you make deposits, withdraw funds, get statements and change your personal details.
These days most people prefer the ability to manage their account online. Check to see what facilities are available, such as logging into the bank website or using a specially designed app for your phone or tablet device.
Whilst most accounts have the ability to transfer funds online, other accounts may require you to visit a branch or use telephone banking. Some savings accounts may also offer a debit card / cashcard for convenience.