What types of savings accounts exist?

The main types include easy-access savings, notice accounts, fixed-term bonds, and tax-free accounts like ISAs.

Are savings accounts safe?

Most UK savings accounts are protected by the FSCS up to £85,000 per person, per banking group.

How do I find the best savings rate?

Compare top interest rates across account types and consider your need for access, flexibility, and FSCS coverage.

What Are Savings Accounts?

Q: What is a savings account?

A savings account is a secure place to store your money while earning interest. It offers varying levels of access and interest rates depending on the account type.

Savings accounts are one of the safest and most accessible ways to grow your money, offering a balance of security, interest, and flexibility.

Whether you need instant access to your funds or are happy to lock your money away for a higher rate, there is a savings product to suit every goal. From easy-access accounts to fixed-term bonds and tax-free Cash ISAs, understanding your options is key to maximising returns.

This guide explains the main types of savings accounts, how interest is calculated, and what to look for when comparing rates — helping you find the best home for your money.

Good for

•

Short-term goals:

Ideal for building an emergency fund or saving for upcoming expenses.

•

Capital preservation:

Most UK savings accounts are , offering low risk while providing modest returns.

•

Tax advantages:

Cash ISAs and the Personal Savings Allowance can make your interest tax-free.

Things to consider

•

Inflation impact:

Interest may not always keep pace with inflation, reducing real returns.

•

Withdrawal limits:

Some accounts require advance notice or limit withdrawals; fixed-term bonds usually restrict access until maturity.

•

Limited growth potential:

Less effective for wealth-building over the longer term.

1. What is a savings account?

A savings account is a secure place to deposit your money and earn interest. It is designed to help you grow your funds over time while keeping them relatively easy to access compared with other investment options.

Savings accounts range from instant-access accounts that let you withdraw funds at any time, to notice accounts that require advance notice, and fixed-term bonds that lock your money for a set period.

Most UK savings accounts from banks and building societies are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person, per banking group. This makes them one of the safest ways to store cash.

Interest rates vary depending on the account type, deposit amount, and wider economic conditions. Understanding how these accounts work is the first step to maximising your returns.

Terminology explained:

Term	What it means
Easy-access	An account that allows withdrawals at any time without penalty or notice.
Notice account	Requires a set notice period (e.g., 30–90 days) before you can withdraw money.
Fixed-term bond	Locks your savings for a fixed term (e.g., 1, 2, or 5 years) at a guaranteed interest rate.
AER (Annual Equivalent Rate)	The standardised rate showing annual interest if the rate and compounding remained constant for 12 months.
FSCS protection	Government-backed protection of up to £85,000 per person, per banking group.

2. Types of savings accounts

Savings accounts are designed for different goals — whether that’s building an emergency fund or earning higher interest on long-term savings. These are the main types available in the UK:

Easy-access savings: – Deposit and withdraw money whenever you like, usually without penalties. These offer flexibility but often pay lower interest.
Notice accounts: – Require advance notice (e.g., 30–120 days) for withdrawals. In exchange, they typically pay better rates than easy-access accounts.
Fixed-term savings (bonds): – Lock your money for a set term (usually 1–5 years) at a guaranteed rate. These accounts often pay the highest interest but offer no access until maturity.
Cash ISAs: – Pay tax-free interest. Available as easy-access, notice, or fixed-term accounts, though rates can be slightly lower than non-ISA options.
Regular saver accounts: – Designed for monthly deposits, often with promotional rates for a set period, but capped contributions.

At a glance: key differences

Account Type	Access	Typical Rate (AER)	Tax-free?
Easy-access	Withdraw anytime	3–5%	No
Notice	30–120 days' notice	4–5.5%	No
Fixed-term bond	No access until maturity	4.5–5.8%	No
Cash ISA	Depends on ISA type	3–5%	Yes
Regular saver	Monthly deposits only	Up to 7%	No

3. Key features of savings accounts

While savings accounts differ by type, they share common features that affect how your money grows, how accessible it is, and how safe it remains. Understanding these features will help you pick the right account for your needs.

AER (Annual Equivalent Rate): – A standardised interest measure showing what you’d earn over a year, including compounding. This allows easy comparison between accounts.
Compounding and frequency: – Interest can be paid monthly, quarterly, or annually. Compounding means you earn interest on previously earned interest, boosting your returns over time.
Access rules: – Easy-access accounts allow instant withdrawals, while notice accounts and fixed-term bonds impose restrictions. Breaking the terms may result in penalties or lost interest.
Deposit requirements: – Many accounts have a minimum opening deposit (e.g., £100 for easy-access or £1,000 for fixed bonds), while regular savers may cap monthly deposits.
FSCS protection: – Most UK-regulated accounts are covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person, per banking group.
Tax treatment: – Interest is taxable but is often covered by the Personal Savings Allowance (PSA). Cash ISAs provide fully tax-free interest, regardless of PSA limits.

When comparing accounts, don’t just focus on the headline rate — consider access restrictions, deposit limits, and whether any bonus rates apply.

4. How interest works

Interest is the return you earn for depositing money with a bank or building society. The total depends on the interest rate, how often it is calculated (compounded), and any withdrawals or additional deposits.

UK savings accounts typically show interest as AER (Annual Equivalent Rate), which represents the yearly return if interest were paid and compounded annually. This makes it easy to compare accounts, even if they pay monthly or quarterly.

The two main types of interest are:

Simple interest: – Calculated only on your initial deposit (principal). For example, £1,000 at 5% simple interest earns £50 per year.
Compound interest: – Added to your balance at regular intervals (monthly, quarterly, or annually), with future interest calculated on the new total. This accelerates growth over time. Learn more in our compound interest guide.

For example, if you deposit £100 into an account paying 5% interest for 3 years, with simple interest, you'd earn £5 each year, ending with £115. By contrast, with compound interest, you'd earn interest on both your deposit and previous interest, ending with about £116. Even small amounts benefit noticeably from compounding over time.

To see how interest affects savings, try our compound interest calculator.

5. Explore interest growth with our calculator

Use this calculator to explore how your savings could grow over time with different interest rates and compounding frequencies. Adjust the settings to compare simple interest with compound interest.

Calculator

Simple interest calculator

Enter your starting balance, interest rate, and savings term to see how much you could earn.

Balance (£):

Interest rate (%):

Compound frequency:

Years:

Future balance:

£0

Interest earned:

£0

Annual Equivalent Rate (AER):

Interpreting the result

Enter values above to see how interest can grow over time with compounding.

6. FSCS protection and safety

Most UK savings accounts from banks and building societies are covered by the Financial Services Compensation Scheme (FSCS). This protects deposits up to £85,000 per person, per banking group, in the event the provider fails.

For joint accounts, the limit doubles to £170,000 (£85,000 per account holder). It’s important to check if multiple brands share the same banking licence, as savings across them count toward a single FSCS limit.

Temporary high balances of up to £1 million (e.g., from property sales or insurance payouts) may also be covered for up to 6 months, but evidence of the source of funds is required.

Check the licence: – Brands like HSBC and First Direct share a licence, so deposits are counted together for FSCS purposes.
Eligibility: – Only UK-authorised banks, building societies, and certain credit unions qualify for FSCS cover.
Exclusions: – Some offshore or international accounts may not be protected. Always confirm before depositing large sums.

7. Tax and savings allowances

Interest from savings accounts counts as taxable income. However, many savers avoid paying tax thanks to the .

For tax-free saving, Cash ISAs are a popular option. All interest within an ISA is tax-free, although the annual ISA allowance (currently £20,000) applies across all ISA types you hold.

Couples can combine their PSA and ISA allowances to maximise tax-free savings. Strategic use of both taxable and ISA accounts can help you optimise returns while staying within your limits.

PSA limits: – £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and none for additional-rate taxpayers.
ISA advantage: – All interest earned within a Cash ISA is tax-free, regardless of PSA status.
Couples' planning: – Spouses and civil partners can double allowances by holding savings in both names.

8. How to compare savings accounts

Start by defining your savings goal. Are you building an emergency fund, saving for a house deposit, or locking money away for higher returns? Your purpose will determine which account type is best for you.

Once you know your goal, compare accounts based on interest rates, access rules, and safety. For example, a fixed-term bond might suit long-term savings with better rates, while an easy-access account is ideal for short-term needs or emergencies.

If you're unsure a savings account is right for longer-term goals, consider investing as it offers higher potential returns — though with more risk.

Use our savings account comparison tool to shortlist the best current deals. You can filter by account type — ISAs, notice accounts, or high-interest bonds — to find the right match for your needs.

Interest rate (AER): – Shows the true yearly return, including compounding. Aim for the most competitive rate that suits your timeframe.
Access rules: – Decide whether you need instant access or can commit to notice periods or fixed terms for better returns.
FSCS protection: – Confirm your savings are covered up to £85,000 per person, per bank.
Deposit requirements: – Check minimum deposits and any caps to ensure the account fits your plan.
Bonus rates: – Watch for temporary bonus rates that drop after a set period.

9. Pros and cons of savings accounts

Savings accounts are a secure and accessible way to grow your money, but they also have limitations. Weighing these advantages and drawbacks will help you decide whether to stick with cash savings, invest, or use a combination of both.

Pros

✓ Low risk — deposits are typically FSCS-protected up to £85,000 per person, per banking group.
✓ Guaranteed returns — interest is fixed or variable but not tied to market performance.
✓ High liquidity — easy-access accounts allow quick withdrawals without penalties.
✓ Ideal for short-term goals and emergency funds.
✓ Simple to open and manage with no investment expertise required.

Cons

✗ Lower returns compared to long-term investments such as stocks or funds.
✗ Interest may lag behind inflation, reducing the real value of your savings.
✗ Withdrawal restrictions or penalties may apply to certain account types.
✗ Introductory bonus rates often drop after the first year.
✗ Tax may apply on interest exceeding your Personal Savings Allowance.

10. Tips for maximising your savings

Getting the best return on your savings is not just about chasing the highest interest rate. It’s also about managing accounts strategically and taking advantage of tax benefits.

Shop around regularly: – Banks frequently update savings accounts and fixed-term bonds. Switching to a better-paying account can add hundreds of pounds over time.
Use your Personal Savings Allowance (PSA): – Basic-rate taxpayers can earn up to £1,000 of interest tax-free (£500 for higher-rate taxpayers). See our PSA guide for details.
Take advantage of ISAs: – Cash ISAs and Lifetime ISAs protect all interest from tax, even if you exceed your PSA.
Split savings across accounts: – Keep emergency funds in easy-access accounts, but move surplus funds to notice or fixed-term accounts for higher returns.
Watch for bonus rates: – Some accounts offer bonus interest Temporary promotional rates that revert to a lower standard rate. . Set reminders to switch accounts when the bonus ends.
Automate savings: – Standing orders or automatic transfers help build savings consistently each month.

11. Example rates

Below are some of the top easy-access, notice, and fixed-term savings accounts currently available in the UK. These highlight some of the most competitive rates on offer — but since rates change frequently, always check the provider’s website for the latest details.