The pros and cons of easy access savings accounts
The average rate on an easy-access savings account is almost four times what it was one year ago, new figures show.
On 1 September 2022, the average easy access account paid 0.84% but on 15 September it hit 3.07% AER, according to Moneyfacts data. If the average rate continues to rise, it could reach or beat the high of 3.73% seen in November 2008.
Interest on all types of savings account has been steadily climbing for some time now, following 14 consecutive Bank of England base rate rises. So while current easy access rates are impressive, there may be bigger returns to be had.
So why choose easy access? We weigh up to pros and cons to find out if this type of account is right for you.
Pros
More flexibility
The biggest advantage of opening an easy-access account is the flexibility it offers customers in managing their savings.
As the name suggests, savers can withdraw their money whenever they need to and earn a better return than if they had left their cash in a current account.
They are a great option for anyone who thinks they might need to withdraw some of the cash they've put aside, for example in times of crisis or emergency.
Low deposit
Unlike many fixed-rate accounts, you don't need a huge lump sum to open an easy-access account.
Some accounts - including ones with market-leading rates - let you start saving with as little as £1 or nothing at all.
Switching is easy
Because your money isn't tied up for a fixed length of time, you can easily move your savings if you spot a better deal elsewhere.
With the savings rate market so volatile, don't be afraid to switch account if it no longer seems competitive.
Less likely to pay tax
One of the biggest snags to higher rates is you could end up being taxed on any interest earned on your savings.
The personal savings allowance means basic-rate taxpayers can earn up to £1,000 a year in savings interest tax-free, while higher-rate taxpayers get a £500 limit. Additional-rate taxpayers have no personal savings allowance.
Because easy-access accounts offer lower rates than some other types of account, you're less likely to go over that limit and end up with a tax bill.
Cons
Rates are lower and subject to change
Choosing an easy-access account is a bit of a trade-off. What you gain in flexibility, you lose in interest.
Not only do easy-access accounts offer poorer returns, rates are variable, meaning they can go up or down at any time. That could happen for a number of reasons - for example, if the Bank of England changes its base rate.
To see how interest compares, this table shows the top rates for restriction-free easy access and one-year fixed savings accounts, ordered by term.
| Easy access | AER | One-year fixed | AER |
|---|---|---|---|
| Cynergy Bank, Online Easy Access Account | 5% | National Savings & Investments, Guaranteed Growth Bonds and Guaranteed Income Bonds | 6.2% |
| Secure Trust Bank, Access Account | 4.98% | Union Bank of India (UK) Ltd, Fixed Rate Deposit | 6.11% |
| Family Building Society, Online Saver | 4.96% | Kent Reliance, 1-Year Fixed Rate Bond | 6.06% |
| Ford Money, Flexible Saver | 4.95% | Ford Money, Fixed Saver 1 Year | 6.05% |
| Shawbrook Bank, Easy Access | 4.95% | Habib Bank Zurich plc, HBZ Fixed Rate eDeposit | 6.03% |
Source: Moneyfacts. Corrrect as of 15 September 2023, but rates are subject to change.
The table shows locking your savings away for at least a year secures you much higher rates, with a difference of more than a percentage point between the best easy-access and top fixed-rate deal.
Can't beat inflation
Despite interest on easy access accounts topping 5% AER, it's still a long way off beating or matching the current inflation figure of 6.8%.
The closer your savings rate is to the rate of inflation, the less value your cash will lose over time. That's why you should ensure that your money is getting the best interest rate possible – even when savings account rates are comparatively low.
Urge to spend
Being able to get at your money more easily, means you may be tempted to spend rather than save it for a rainy day.
If you want to make the most of the interest offered on your easy-access account, try not to dip into your savings too often. Interest on savings compounds, so provided you leave it in your account, you’ll earn interest on the interest paid. This will help your savings grow faster.
Some come with caveats
It's worth remembering that some easy-access accounts offer more immediate withdrawals than others. If you're with an online-only bank or are operating your account by phone, it's possible that any withdrawals or transfers you make might take a few days to go through.
Easy access accounts may also limit the number of withdrawals you can make each year without losing interest, so remember to check. When we analysed Moneyfacts data in July, for example, we found more than half of the top 10 instant access accounts imposed penalties on savers for withdrawals.
Also, watch out for any offers of introductory 'bonus' interest rates. These might be fixed for 12 months, but when that period expires the rate payable on your cash may drop.
How to choose the right savings account for you
When deciding which type of savings account to open, ask yourself two things: how likely are you to need access to your money, and how long are you prepared to lock it away?
It might suit your circumstances to have one type of account or a variety with different terms and access.
Just always check the small print before opening an account to see what sort of hit you might have to take if your situation changes and you need urgent access to your money.
- Find out more: how to find the best savings account
