Finding the best savings account 5 steps to finding the best savings account
The big banks have been back in the news recently following technical difficulties at RBS/NatWest and the revelation of the past manipulation of interest rates for their own gain by several large banks.
If the latest events have finally persuaded you to switch your bank account provider, and our figures show that banks retain seemingly undeserved levels of customer loyalty, we show you how to go out about it and highlight the banks with a reputation for good service.
Step 1: Find the best account and switch
Switching to a Best Rate savings account can earn you considerably more interest. Just because your savings account paid a good rate when you opened it, don’t rely on your provider to still be giving you a good deal. To find out what rate of interest you’re getting at the moment, and to see how much better off you could be, use our new Savings Rates Booster.
Once you’ve switched to a Best Rate account, keep an eye on your rate and be prepared to switch again if it starts to fall. If you’d rather not have to switch regularly, go for one of our savings accounts which is Best for Consistency.
Step 2: Use your tax-free cash Isa allowance
The interest you earn in a savings account is taxable, so it makes sense to use your annual £5,760 tax-free cash Isa allowance before putting any money into a savings account if you want to get the best return on your money. In an ordinary savings account, any interest you earn will be taxed at 20% if you're a basic rate taxpayer and 40% if you're a higher-rate taxpayer, so not using your Isa allowance means you are giving away interest to the taxman. To get the best return on your money, make sure you choose a Best Rate cash Isa.
Step 3: Decide how and when you want to access the account
If you're after the best interest for your savings, the chances are you will have to bank online, as the majority of the Best Rate savings accounts are internet-only. If you've got your heart set on a branch-based account, then you will probably have to settle for a slightly lower interest rate.
You also need to decide whether you want easy access to your money, or whether you're happy to give some notice. Traditionally notice accounts paid higher rates than easy access savings accounts, although today this is no longer the case, so there’s usually no need to tie your money up unless you particularly want to. If you want a notice account, our Best Rate notice accounts are the best available.
Step 4: Fixed rate or variable?
You need to decide whether you want to receive a fixed rate of interest, or whether you’re happy for it to change, usually when the base rate changes. Variable rate account interest rates go up and down, broadly in line with the Bank of England base rate, and are often tiered to pay more interest the higher your balance. Some variable rate accounts are actually tied to the Base Rate.
Fixed rate accounts usually pay a favourable rate of interest for a fixed period of time, but in return you have to tie your money up for the same length of time – for example 1,2 or 3 years. Generally speaking, the longer you are willing to tie your money up for, the higher the rate of interest you’ll get. However, you have to be sure you won’t need to get your hands on your money, and you take the risk that if interest rates start to go up you won’t be able to benefit.
Use our Best Rate tables to find the best fixed rate accounts available, no matter how long you want to tie your money up for.
Step 5: Decide whether you want to invest a lump sum, or a regular monthly amount
Regular savings accounts often offer attractive rates of interest and can be a good bet if you want to save a regular monthly amount, but are not an option if you have a lump sum. Because they have a maximum monthly investment, there is a limit to how much interest you can earn. They also usually only offer the good rate for a fixed period of time, so you need to make sure you know when the interest rate drops.
For more on saving and savings accounts, see our book Save and Invest.