A Guide on Savings Accounts

Savings accounts come in various forms. However, they all aim to build up a lump sum of money that you can use for whatever purpose that you like.

You may be saving for to build up an emergency fund or for a specific purpose, or just for a rainy day.

Savings accounts normally come in the form of deposit accounts, which lets you earn interest on the money that is held in the account. Providers will then use that money to lend to other customers in the form of mortgages, loans, and credit cards.

Most people perceive savings as regularly putting a little money away to build up a large pot of money. However, there are some savings accounts that allow lump sum amounts and intend to increase the value of them.

Different types of savings plans

There are a lot of shapes and sizes of savings plans such as:

  • Cash ISAs allow you to grow your savings tax-free.
  • Internet savings accounts are specifically run over the internet. Interest may be slightly higher since the accounts are cheaper to run.
  • Instant access savings accounts allow you to have immediate access to your money without any penalty.
  • Notice savings accounts require you to issue a notice of withdrawal. You will be penalised by a loss of interest if you cannot provide the notice period that you need to, and in some cases, you would not be permitted to have access your money early at all.
  • Children’s savings accounts or specialist over-50’s savings accounts may have several features that you (or your kids) will be able to benefit from.
  • Savings plans can be on a fixed interest rate or variable interest basis.
  • Offshore savings accounts allow you to receive interest gross or even defer it to manage your tax liabilities.

How savings providers make their money

National Savings Accounts that backed by the UK Government include a number of tax-friendly accounts for children and adult.

There are no charges to set up a deposit savings accounts and normally no fees either. Providers make their money by making use of your savings to lend to other customers at a rate that is higher.

You may be penalised for early withdrawals on a notice account, which saves the provider from paying a certain amount of interest, thereby increasing their return.


From April 6, 2016, people who earn under £150,000 will receive a Personal Savings Allowance, which means that the first portion of interest that is earned in a tax year is tax-free. If you are a basic rate taxpayer, this amount is £1,000, and if you are a higher rate taxpayer, it is £500 (taxpayers with highest rates do not receive an allowance).

However, you must be careful as this does not just apply to normal savings accounts. If you earn interest on investments, such as Government gilts or corporate bonds, or if you receive an income from any fixed interest investment funds that are classified as ‘interest dividends,’ then they will also be included in your £1,000.

This allowance does not apply to some National Savings & Investments products and cash ISAs, as these are already tax-free anyway.

If you earn some money over your allowance amount, you will be required to declare your interest to the HMRC and pay any tax that is due.

Read also: Can You Still Receive a Decent Return on Your Savings?