There are many different types of savings accounts – it can be hard to know which one you should have.
Key points:
- What types there are
- What the differences between them are
- Which ones suit certain individuals more
Types of Savings Accounts
Easy Access Savings Account:
Easy access savings accounts allow you to make withdrawals as you like although there can be a limit on how many times you can withdraw in a year depending on the account. This type of savings account usually pays lower interest rates but are a great option if you may need your money soon or often.
Notice Savings:
A notice savings account will allow you to withdraw money as long as you give an agreed amount of notice before hand, it will also most likely have an interest rate that’s higher than an easy access savings account.
Fixed-term Accounts:
A fixed term account holds your money for a set period, the term length is varied so finding one that suits you is easier. You can withdraw from this account, but it is likely you will receive a penalty charge for early withdrawals, and you may need to provide notice beforehand. Interest rates for this type of account is similar to a notice savings account.
Lifetime ISA:
There are two options you can choose between for a Lifetime ISA, a cash ISA and a Stocks and Shares ISA. A cash ISA is more suited to short term savings up to 5 years and a Stocks and Shares ISA is more suited or long-term savings.
A Lifetime ISA (LISA) is a savings account specifically for a first-time buyer to save for a house deposit or retirement. You can open an account between the ages 18 and 39 although you can put in up to £4,000 each tax year until you’re 50.
There is a 25% government bonus each tax year on your savings with the maximum being £1,000. You can only withdraw your money when you’re buying a home, aged 60 or over or if you’re terminally ill and have less than 12 months to live.
If the property costs £450,000 or less you can use your savings to buy your first home, but you will need to have had made your first payment into the LISA at least 12 months before buying the property.
Help To Save:
A help to save account is specifically for individuals receiving working tax credit or universal credit. They will receive 50p for each £1 saved into the account over 4 years. These bonus payments happen every 2 years after the account has been opened and the account only stays open for 4 years. You won’t be able to open another help to save account or reopen your current one once it’s closed.
Cash ISA:
Cash ISAs are tax free savings accounts which means you pay no tax on the interest you earn. There are different cash ISAs available which have different ways to access your money, instant access, limited access and fixed rate. Your ISA allowance is £20,000 for the tax year 2024/25 and this allowance can be split across different ISAs.
Regular Savings:
A regular savings account may have a limit on how much you can pay in and how often you can withdraw money. You will commit to a certain amount each month to pay in and you receive a higher interest rate than what you would get with the same bank or building society’s current account or ordinary savings account. These accounts usually last for a fixed term.
Children’s Savings:
Essentially a savings account designed for your child, once the child is 7, they can manage their own account. With some accounts they could be able to take money out as well as deposit more money in.
The interest on the account depends on each bank offering these accounts. Banks and building societies usually offer these type of accounts.
Junior ISAs:
The interest on this account isn’t taxed on withdrawal and Children can save up to £9,000 in the tax year 2024/25. Once they are 18, they can access the money in the account and the money belongs to them.
Each account is great in different ways and are right for different goals, circumstances and individuals. Taking each one into consideration and getting advice will help you decide what’s right for you.
For ISA’s Investors 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 manager. Tax treatment varies according to individual circumstances and is subject to change.
You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.
By saving in a lifetime ISA instead of enrolling in, or contributing to an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme:
(i) you may lose the benefit of contributions from your employer (if any) to that scheme; and
(ii) your current and future entitlement to means tested benefits (if any) may be affected.
