Savings Accounts

The Basics:
Savings accounts are the high interest, low functionality accounts, which should be used to maximise your interest but give you access to it when you need it. However you should always use up your mini-cash ISA allowance before putting money in a savings account, if you haven’t read the following section of the crash diet first.

With savings accounts you used to need to wait 30, 60 or even 180 days to access your cash these days you can get pretty much immediate access to your cash at a better rate. There are ‘instant access’ accounts which mean you can withdraw your cash immediately and ‘no notice’ accounts which allow instant withdrawals, but due to the practicalities of getting the cash, i.e. it must be posted to you, will take a few days.

Choosing an account:
Choosing a savings accounts should simply be a case of choosing the account with the highest interest, however even with this relatively simply product there are a few things to watch out for.

Bonus rates: temporary initial rate increases to make the account seem more attractive to new customers - if you’re planning to stick with one account for the longer term, ignore the extra bonus amount. However if you have the energy to be a rate hopper, following account to account then milk the companies offering bonuses and move once that period is over.

Tax: The interest on the money you keep in your savings is automatically taxed at 20%, which is the rate of tax basic rate taxpayers pay on savings. This means those who pay basic rate tax needn’t do anything further. However if you are in the higher rate tax bracket, you should be paying 40% tax on your savings, when you declare the interest in the Inland Revenue Self Assessment form, the extra tax you are eligible for needs to be taken into account there. For non-taxpayers, people earning below the basic threshold, you can ask your bank for an IR85 form and then your interest will be paid without the 20% tax being taken off.

Rates are variable: The rate savings accounts pay is variable and can and will change as you have your money in it. Rates tend to move both when the UK’s standard interest rate as set by the Bank of England moves and when the product provider changes the rate for its own advantage. This means if you don’t monitor the interest rate you receive, you can lose out. However it should be easy to move your money to a better paying account. You just withdraw the money from the current place and deposit it in a new one.

Suck, slap and flog
Many banks use what I like to call the suck, slap and flog technique. They suck you in with high rates, slap the rates down without telling you and then flog a new account. Keeping their name in the best buy table, their costs at rock bottom and you in blissful ignorance assuming its your account that’s the top payer. So its important to check very carefully what you’re account is paying.

Choosing an account


Internet only: www.egg.com no-notice account has a bonus guaranteeing new account holders a 4.6% rate, before it drops to 4% after six months. For those wanting to avoid bonus rates, www.nationwide.co.uk has an e-saver account paying 4.25%.

Notice accounts: Those with more than £1,000 can earn 4.45% in the Nottingham Building Society’s Post It account which requires 90 days notice to withdraw money. This includes a bonus of 0.5% interest for a year.

No Notice accounts: Scottish Widows Bank pays 4.05% with the rate increasing slightly as more is deposited, however 0.5% of this is an interest bonus for six months. The best non-bonus account is Intelligent Finance’s phone and net account at 4.01%.


As savings rates vary all the time, there is no correct answer to which is the best at any moment in time. If you are happy to bank on the internet, you will be paid a better interest rate. However there are oodles of sources to tell you what the best rate is. Any of the broadsheet’s or mid market newspapers money sections list best buy savings accounts tables. Alternatively internet sources such as www.moneyfacts.co.uk have daily updated best buy lists – though as always with best buy tables – don’t simply go for the top rate – check their tricks.

How much can you save:
There’s considerable gain to be made from switching your savings to a better paying account. There are many savings accounts, which unbeknown to the saver are paying pitifully low amounts of interest. In real terms often this means the saver is losing money as the interest is lower than inflation. It’s very easy to up returns.

Even when interest rates are low, it’s possible to make substantial gains by shifting to the right savings account. With five thousand pounds over three years in a savings account the worst payers will give you just £75 worth of interest. However a top paying account at 5% would return £790 that’s over ten times as much