Savings are the bedrock of financial planning. Having a reserve of cash to call on for a big purchase or an emergency is better than going into debt.
A few years ago, high inflation and low interest rates ensured saving simply meant watching the real value of your money fall. Those days appear to be over. Its time to look again at the best ways to save.
Are savings safe?
Saving is not like investing. Your returns can be predictable, and your capital – the money you put in – should not be at risk.
Your savings are protected in case your bank or building society fails. The Financial Services Compensation Scheme (FSCS) will protect up to £85,000 (or £170,000 held in a joint account). But this is not per account, it is per bank. So if you have multiple accounts with one bank, make sure that the sum total of your money in them is below the threshold.
There is no limit on how much you can save, or on the interest you earn – although you may start to pay tax on your interest after it reaches a certain level. The personal savings allowance means most people can earn £1000 in interest in a tax year before the taxman takes a share, although higher rate taxpayers can only earn £500.
Choose your savings account
Keeping cash under your mattress may not be a great idea. It's vulnerable to theft or damage, and it won't earn any interest or grow in value.
You can consider a savings account, where your money is safe and earns interest. But there are many different types of savings account, which cater to different savings needs.
Whatever your savings needs, here’s a roundup of the main types of savings accounts.
Current accounts with interest
As banks vie for our business, the line between savings and current accounts is sometimes blurred. Your current account is for everyday money management, such as paying bills. But some banks will pay interest on your balance in your current account.
It might be better than earning no interest, but rates tend to be low, and there will be conditions to qualify for interest payments.
Easy access savings
An easy access or instant access account makes it easy to access your savings. These accounts have no restrictions on when and how much you can withdraw but tend to have a lower rate of interest. The big benefit of accounts like this is that they don’t lock your money away.
It might be a good idea to have some of your savings in an easy access account to call on in emergencies.
Notice account
A notice account requires you to give notice when you want to withdraw cash, although you can pay a penalty charge if you must have cash in a hurry. These tend to pay higher rates than easy access accounts.
Fixed rate accounts
These accounts let you deposit your money for a fixed time (1–5 years). Your money is tied up and you won’t be able to access it until the end of the set term, but interest rates tend to be higher as a result, and returns are predictable.
Regular savings accounts
If you have spare cash at the end of every month, or want help with the discipline of saving, a regular savings account could be the answer. You need to deposit a set amount each month. Access conditions vary, but interest rates tend to be higher than instant access accounts.
Children’s saving accounts
A parent or someone with parental responsibility can set up an account for a child and hold it in trust until the child is a specified age.
It could be a great answer for the question of presents at Christmas and birthdays. Once opened, anyone can gift money.
Cash ISA
An ISA is a tax efficient way of saving. Accounts allow you to save up to your ISA limit (£20,000 per year for the 2025/26 tax year), and any interest earned will not be subject to tax. Access conditions vary, but with most taking out money will mean losing its tax-free status.
Cash ISAs are becoming more popular for larger, long-term savings because they avoid the restrictions of the personal tax allowance.
So which account is suitable for you?
To choose an account, you need to compare interest rates, and make sure withdrawal conditions meet your needs. Do you want to start small and be able to dip into it whenever you like? Or do you have a large sum that you want to stash away for a few years?
Consider whether it is worthwhile to have an ISA.
To answer these questions, and for help finding the accounts with a competitive rate of return get a savings expert on your side.
Call us at Continuum today.
FSCS bank protection limit - Are my savings safe? - MSE
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable saving strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice, National Savings products or deposit accounts.
A future performance forecast is not a guide to future performance and may not be repeated.
Investors in ISA’s do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.
Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
