Beginner's guide to savings accounts

Here are some common uses for each of these 3 types of account.

Current accounts

You need to open an account to:

• receive your salary each month
• pay your energy or broadband bill
• send money to your friends
• pay your rent
• buy things in shops

Savings accounts

You want to open an account to:

• put some money away for a rainy day
• save up for a holiday
• keep some gifted or inherited money secure
• store some extra money you don’t need to cover your essential costs
• save up for a house deposit

ISAs

As an ISA is a type of savings account, all the same examples apply.

There is often a trade-off with savings

In general, the choice is usually between:

• having more flexibility – this means being able to deposit or withdraw money whenever you like – and earning less, or
• having less flexibility – this means only being able to deposit or withdraw money at certain times – but earning more.

This is not always the case but it can be a good rule of thumb. You should compare all the accounts on offer before deciding which one is right for you.

Instant vs limited vs fixed

These are 3 different levels of flexibility.

• Instant access savings accounts allow you to withdraw funds anytime without reducing your interest rate. The rate is often variable, which means it can go up or down.
• Limited access savings accounts allow you to make a certain number of withdrawals. For example, some triple access accounts allow you to take money out up to 3 times a year while keeping your interest rate. If you withdraw 4 or more times, your rate drops.
• Fixed rate or fixed term savings accounts are for depositing a lump sum for a certain length of time. In return for not withdrawing your money, you get a guaranteed interest rate for the term of the account. With some fixed rate accounts, if you withdraw money before the end of the term, you must close the account and pay an early access charge. With others, you cannot withdraw money until the end of the term at all.

Another common type of savings account is a regular saver. These are designed for depositing a smaller amount every month, often for a year. They tend to come with high interest rates but you only earn the interest on a small balance. These can be instant or limited access, so check the account’s terms and conditions before applying.

The main difference is tax

The main difference between a savings account and cash ISA is how the interest you earn is taxed.

The tax year runs between 6 April and 5 April. This tax year, you can pay in up to £20,000 across your ISAs with any provider and all the interest you earn on that money is tax-free.

The interest you earn on your savings accounts may be tax-free up to your Personal Savings Allowance and any other allowances you may be eligible for. The Personal Savings Allowance is an amount set by the Government, and it depends on your Income Tax band. In the current tax year:

• basic rate taxpayers can earn £1,000 in tax-free interest each year
• higher rate taxpayers can earn £500 in tax-free interest each year
• additional rate taxpayers do not get an allowance

The allowances are independent

The cash ISA allowance and the Personal Savings Allowance are independent. The interest you earn in a cash ISA does not count towards your Personal Savings Allowance.

Example: if a basic rate taxpayer earns £800 in interest in their savings accounts, they can only earn £200 more in interest in savings accounts before the interest is taxed. But they can deposit up to £20,000 into an ISA and earn any amount of interest in that account tax-free.

More about the Personal Savings Allowance

Yes, your application can be rejected.

Some common reasons are:

• you do not meet the eligibility criteria for the account. For example, you do not have a current account with that provider
• you failed the identity checks. For example, the name you entered in your application does not match your passport

Yes, we offer children’s savings accounts. However, we do not offer Junior ISAs (JISAs).

You can learn more about our children’s accounts and how they work on our children’s savings page.

You don’t need to do the maths to get an idea of how much money you will make.

Every savings account in the UK has a summary box. This is a regulatory document from the Financial Conduct Authority. The summary box means that every authorised UK provider has to give you the same information in the same format. This makes it easier to compare different accounts with different providers.

As an authorised building society, we have to give you an estimate of your balance based on certain deposits. For example, if you deposited £1,000 and the interest rate is 4.00%, then we have to estimate what you could earn. This can help you get an idea of how much money you will make without getting out the calculator.

Some interest rates can change while others are set for a certain term, such as 2 years.

Fixed interest rates vs variable interest rates

A fixed interest rate is where the rate stays the same for a set amount of time. So, the interest rate you get paid will not change for the agreed term.

A variable interest rate is where your interest rate could go up or down. The interest you earn can change over time. This could happen for a number of reasons. For example, when the Bank of England changes the base rate.

Keeping on top of rate changes

Your provider should tell you if your interest rate is about to change. This can be by email or post.

If you save with Nationwide, we recommend you sign up to our SavingsWatch service.

With SavingsWatch, we will tell you:

• about any improvements we are making to your savings account’s features
• if your interest rate is changing
• about any new savings products we launch and any improvements to our savings range, including savings-related initiatives and services

We will also email you an annual Savings Summary. This shows your accounts’ interest rates.

Sign up to SavingsWatch

As a building society, we were set up to help people save money and buy homes. We work by lending the money that members save with us to members who borrow from us.

The interest we receive from our borrowers allows us to pay interest to our savers. We also use it to run our Society.

More about what makes us different

This depends on the particular savings account.

Usually, the minimum deposit is very low, such as £1. Other times, there will not be a minimum deposit.

You can find this information in the account terms and conditions.

You can open as many savings accounts or ISA products as you wish.

This means you can spread your savings out across different types of account. For example, you could save a lump sum in a fixed rate account and keep some money accessible in a limited access account.

For ISAs, your annual ISA allowance of £20,000 is shared between all your ISA products, across all providers. If you are planning on opening several ISA products with different providers, make sure you keep track of this allowance.

The interest you earn can be taxed, but your deposits are not taxed.

With an ISA, all the interest you earn is tax-free.

With a savings account, you can earn interest tax-free up to your Personal Savings Allowance and any other allowances you may qualify for.

More about the Personal Savings Allowance

If you are opening the account online, you can apply in minutes. But there might be some delay between applying for an account and the account opening.

The time it takes depends on how straightforward your application is. For example, do you have all the necessary documents to hand? Do you bank with that provider already?

There is no guaranteed or set timeframe for opening a savings account.

This depends on which level of access you have chosen.

• Instant access savings accounts allow you to withdraw funds anytime without reducing your interest rate.
• Limited access accounts allow a certain number of withdrawals without reducing your interest rate.
• Fixed rate or fixed term accounts come with restrictions on withdrawing your money.

Usually, you can withdraw money using a mobile app or by logging in to an online bank or visiting a branch.

Depending on how long you leave the account, usually nothing happens.

Your money continues to earn interest and sits securely in the account.

Sometimes, for ISAs, you might need to 'reactivate' the account if you have left it for a long period of time. For example, if you don't pay any money into a Nationwide cash ISA for an entire tax year, your ISA will become inactive. To make a new deposit, you will need to renew or reactivate your ISA.