What to consider when choosing a new savings account
What’s the best savings account for your needs? For most people, the first thing to look at when choosing a new account is the interest rate. And that's understandable, as we want to get the best return possible on our investments. But selecting the right account for you comes down to more than just interest rates.
In this short guide, we'll talk about what to look for in a savings account, from interest rates, to access, and everything in between.
In many cases, interest rate is the top reason for selecting a particular account. If your priority is to earn as much on your savings as possible, it might make sense to look for the best possible returns. This is a good option if you aren’t bothered about potentially having things like access restrictions or a high minimum operating balance on your account.
The best savings rates tend to be found on accounts that require you to put away your money for a set period of time. For example, fixed-rate cash ISAs and fixed-rate bonds often give the higher interest rates, but withdrawals can result in a loss of interest.
If interest rates are your focus, make sure to check the following before opening an account:
- Is the advertised rate a bonus rate that will change after a period of time?
- Is there a minimum operating balance or required saving commitment on the account, and is this right for your circumstances?
- Is the interest rate fixed, meaning that it won't change? Or is it variable, meaning that it can go up or down as the market changes?
If you need access to your money when you want, you might not benefit from the best interest rates.
Easy-access accounts that allow unlimited withdrawals tend to come with a lower interest rate. But you won't need to worry about getting hold of your money as and when you need it, and you may need as little as £1 to open the account.
Saving without paying tax
If you want to save without paying tax on the interest you earn, there are few ways to do it. The Personal Savings Allowance (PSA) allows all basic and higher-rate taxpayers to earn up to £1,000 and £500 respectively in tax-free interest per year. But if you're an additional-rate taxpayer who doesn't get a PSA allowance or you've exceeded yours, you can also earn tax-free interest on up to £20,000 of savings per year in an individual savings account - commonly known as an ISA.
There are a few types of ISAs to suit different savings needs. You can get instant-access ISAs, fixed or variable-rate cash ISAs, stocks and shares ISAs, or even a lifetime ISA if you're saving for retirement or your first home.
Take a look at our guide on 'what is an ISA?' to find out more about the different types.
We all save for different reasons. You might be saving up for a house deposit, or you could be trying to build a nest egg for your child's future. What you want to achieve with your money could decide the right savings account for you.
So, ask yourself, what are your savings goals?
Saving for a house deposit
After a long period of rising house prices, it's not easy to save the amount of money generally needed to buy a home. Chances are that you'll be looking for the best possible returns on your savings.
For first-time buyers, there's the government-backed lifetime ISA, which pays a bonus of up to £1,000 each year if you use the money to help buy your first home. There are also house-deposit-specific savings accounts out there for first time buyers and home movers, like our new Home Deposit Saver. The Home Deposit Saver lets you earn a competitive rate of interest while building up the deposit needed for your first or next home.
If neither of those are suitable, higher-interest accounts like fixed-rate ISAs, bonds and regular savings accounts could also be useful.
Saving every month
If you want to get into a monthly savings habit, regular saver accounts encourage you to make monthly deposits to help you reach your goals. Some regular savings accounts require you to make monthly deposits while others just encourage it. Regular savers usually run for a fixed term of 24 months and limit the amount of cash withdrawals you can make.
Saving for your children
There are a number of tailored children's savings accounts and junior ISAs to use on behalf of your child before they turn 18. With these accounts, you'll act as the authorised signatory on the account, which will allow you to oversee the growing nest egg that you're building for your child.
Saving for a wedding
Saving up for a wedding often calls for an account that lets you pay in and withdraw money as often as you like. You and your partner may both be saving for the wedding, which is why a joint account might make sense. You can take out some savings accounts in both of your names, so that you can both deposit money when needed.
Find out more on how to choose a savings account
We've been helping people save for nearly 150 years and we're here to help you find the right savings account for your needs. Take a look at some of the other guides in our Knowledge Base to find out more useful information about savings.
If you're ready to open an account, you can compare our full savings range online today.
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.