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What is a savings account?

A savings account can help grow your money. Here is how a savings account works, and how to open one.

A savings account is a type of account held at a financial institution (typically a bank) that usually pays interest on deposits. The account holder deposits money into the account, and then interest is paid on the balance of the account.

The main purpose of a savings account is to allow customers to save money, whilst earning interest on the account balance and the deposited funds over time.

How does a Savings Account Work?

Banks tend to offer a range of savings accounts with various interest rates. When you deposit money into a savings account, the bank will usually pay a small amount of interest on that money, which means that your balance will grow over time.

You can usually withdraw money from a savings account at any time unless it’s an account which requires you to send a notice to withdraw funds. In general, savings accounts are a safe and easy way to help save money and earn interest on that money too. Learn some money saving tips.

What Types of Savings Accounts are available in the UK?

There are a variety of savings accounts available in the UK. Some of the more common accounts are:

  1. Easy Access Savings Account: This type of savings account allows you to deposit and withdraw money at any time, typically with no notice period or penalty for withdrawals. They usually have no minimum deposit requirements. Learn more.
  2. Notice Savings Accounts: These accounts require you to give notice before making a withdrawal, usually 30, 90 or 120 days. Notice accounts tend to have a higher interest rate than easy access accounts.
  3. ISA (Individual Savings Account): ISAs are tax-free savings or investment accounts that allow you to save money without paying tax on the interest earned. There are different types of ISAs, such as cash ISA or stocks and shares ISA.

Chip does not provide tax advice. Tax treatment depends on individual circumstances and may be subject to change in the future.

It’s always important to do your own research into the various savings accounts available and find one that best fits your needs.

Opening up a Savings Account

It’s typically very simple to open up a savings account. However, you should make sure you do your research to ensure you open a savings account that’s right for you. Some tips for finding the right savings account include:

  1. Interest Rate: Look for savings accounts that have a high AER (annual equivalent rate). The higher the AER, the more interest you can earn through deposits and the account balance. Learn more about interest rates.
  2. Fees: Some savings accounts may come with fees, which could be for monthly maintenance or fees for withdrawing. Make sure you check the terms and conditions to ensure you don’t have to pay unexpected fees.
  3. Accessibility: You should consider whether your cash can be instantly accessed or you need to give notice to withdraw funds. As a general rule you shouldn’t put savings you may need to access instantly in notice or fixed term savings accounts.
  4. Minimum Deposit Requirement: Some savings accounts require a minimum deposit to open the account, while others don’t. Choose an account that best fits your financial situation.

It’s a good idea to shop around and compare the different savings accounts available, to find the one that best fits your needs.

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