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How to find a savings account that actually suits your needs

Cash savers have been punished by a decade of rock bottom interest rates. Even though the Bank of England’s base rate is now starting to rise, it is still a long way from its historic norm, and not all banks and buildings societies are passing on the increase in the rates they offer on your savings.

A man and women putting coins into a pig money box with boxes around them

What to look for when choosing a savings account

It has never been more important to get the best deal you can on cash savings. But as well as finding the best rate, you need a product that meets your needs. When choosing a savings account, ask yourself:

  • What are you saving for?
  • When will you need the cash?
  • Can you afford to save regularly?
  • Could you lock your money away for a better deal?

What types of savings account are available?

Here is a brief introduction to some of the main types of savings accounts on the market. The tax treatment of savings and investment products can change and is dependent on individual circumstances so it’s not a one size fits all situation, and if in doubt always seek the support of a financial adviser.

Instant access

Even if you put your money in the highest interest instant access savings account on the market right now, you’d only be earning around 1.3%. When you consider that inflation in the UK is currently running at around 3%, that means, in real terms, the value of your pot of cash is actually being eroded over time.

However, if you think you might need to access your cash at short notice, an easy access savings account might be the right choice for you – at least in the short-term.

Cash ISA

A cash ISA offers you a way of saving tax-efficiently, as you won’t have to pay any tax on the interest you earn. You can save contributions up to your annual ISA allowance of £20,000. Some ISA providers will let you withdraw and replace money in the same tax year and you can use your allowance between a combination of ISA account types such as stocks and shares, innovative, and Lifetime ISA.

Fixed rate bond

You can usually get a better rate by locking your money away for a fixed period in a savings bond. If you can commit to five years with no access to your savings, you could earn nearly 2.5% a year in the fixed rate bonds currently topping the best buy tables.

Bank account or regular saver

In their fierce battle for your custom, banks have been competing on current accounts to get people to switch to them. If you’re willing to do this, you might be able to bag a better rate by keeping your savings in a current account or a linked regular savings account.

But there are often conditions attached – for example, you may need to set up direct debits, make regular payments in to the account, and there might be a minimum deposit or a maximum amount on which you can earn the headline interest rate. You may also need to pass a credit check.

Help to Buy ISA

The government launched the Help to Buy ISA two years ago as a way to help first time buyers get on to the property ladder. It gives you a bonus of £50 for every £200 you save each month, up to a maximum bonus of £3,000 (for which you would need to put away £12,000) as long as you use the money towards your first home.

You can also earn up to 2.53% interest with some providers. You claim the 25% government bonus through your solicitor when your house purchase is going through. There are restrictions on the value of the property you can buy, and you have to live in it, you can’t use the scheme for a buy-to-let property.

Lifetime ISA

The latest savings account to the party is the Lifetime ISA (LISA). You have to be between 18 and 39 to open one, and you can currently save up to £4,000 each year into it until you reach the age of 50. The government puts in a 25% bonus on top of everything you save, up to a maximum of £1,000 a year. However, if you withdraw the money for any other purpose than buying a first home, or after you turn 60 a withdrawal charge would apply by way of the Government reclaiming the bonus. The withdrawal charge is 25% of the amount withdrawn so can work out more than the bonus that was paid in therefore it’s possible to end up getting back less than you invested.

You can have a Help to Buy ISA and a Lifetime ISA at the same time, but you can only use one product for a first home purchase. So you could use the Help to Buy ISA for a first property and the LISA for later life savings. Despite there being significant differences between the Help to Buy ISA and the Lifetime ISA, you can transfer a Help to Buy into a Lifetime ISA and any contributions made into the Help to Buy before April 2017 that are transferred to a Lifetime ISA before April 2018 will not count towards the current Lifetime ISA limit. LISAs are available as cash accounts or stocks and shares, and with the generous government bonus, they’re worth considering.

With OneFamily the LISA comes in the form of a stocks and shares account so investor’s capital is at risk and the Lifetime ISA rules apply. Learn more about OneFamily’s Lifetime ISA if you’re interested in investing towards your first home or for retirement.

Whenever saving, always make sure the product fits your goals and that you’ve checked you meet the eligibility criteria.


Written by Hannah Smith – Financial Journalist

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions.