Easy-access savings accounts
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Guide to easy-access savings accounts
Probably the simplest and easiest of all savings accounts is the easy-access account.
You may have heard them called 'instant-access accounts' or 'no-notice accounts', but they're all the same thing - a flexible, accessible way to save.
It's very simple; you pay your money in, earn interest, and can withdraw your funds whenever you like.
That's why many people use such accounts for their emergency, rainy-day fund - it means that their money is within reach at all times.
If the boiler breaks or an unexpected bill arrives you can get your hands on the money straight away.
Are there any downsides to an easy-access account?
In the past it's always been advisable to have some money saved in an easy-access savings account, but the waters have been somewhat muddied with the rise of interest-paying current accounts.
Such products offer all the convenience of no-notice saving and, in some cases, have been known to pay more attractive rates of interest. That said, current accounts tend to have limits on how much of your balance they will pay that high rate of interest on, say the first £3,000, making them less appropriate for bigger balances. These accounts may also have a time limit over how long the rate will be paid ‒ you may only get that higher rate through your current account for a year.
While easy access accounts are useful for money you need in an emergency, they aren't necessarily the best way to save larger amounts. As a general rule, if you lock your money away in an account that doesn’t allow access for a couple of years then you’ll get a better rate of interest.
There's a lot to think about when choosing a savings option and the right one depends on you.
For example, if you're trying to build up a savings habit then a regular saver account might be worth considering.
If you have a lump sum and you want to earn as much interest as possible, then a fixed-rate bond might be more suitable. Try our savings guides for more information on some of the products and options and think about the long-term benefits that can accrue with compound interest.
Are there high-rate, easy-access options?
Some easy-access accounts may pay a higher rate than others, but watch out for restrictions.
For example, you might have to agree to only being allowed to make a limited number of withdrawals in a year.
Other options may be online only, meaning you can't manage them in a branch or on the phone.
Because that means your account is less work for the bank or building society, it could pay you a higher rate.
Sometimes there are other limitations in place, around who can open a high interest easy access account. For example there have been occasions when in order to qualify for the market-leading account you would have to have a current account with the provider as well.
You can find out more about a particular product when using our comparison page.
If you've carefully compared easy-access savings accounts then you'll have probably chosen one that's paying a top rate of interest.
However, that won't necessarily last. Many savings providers pay a 12-month bonus rate, meaning that you'll be transferred onto a lower rate of interest after the first year.
The drop in rate could be dramatic, leaving your savings earning a paltry amount unless you do something about it.
Your account provider should send you a notice when a bonus rate is about to end, but it's a good idea to make a note yourself of when you opened the account and consider switching around the time of the first anniversary.
That way, you're regularly comparing accounts and can be confident you're earning a top rate.
Individual Savings Accounts (ISAs) work in much the same way as normal savings accounts, but you don't pay any tax on the interest you make.
An easy-access ISA is one way to use your tax-free allowance for the year.
If this is the only savings you have it may make sense to benefit from the tax-free benefits of an ISA, though it’s worth remembering that most of us benefit from a personal savings allowance which outlines how much we can earn in interest each year in normal savings accounts without paying tax.
The personal savings allowance stands at £1,000 for those paying the basic rate of income tax, falling to £500 for higher rate taxpayers. Additional rate taxpayers do not get a personal savings allowance.
While an easy access ISA will offer tax-free returns, it won’t pay the highest rates available on ISAs. If you have money that you’re unlikely to need for some time and want to get the best possible return then you may be better off locking it away for a few years in a fixed rate ISA. As ever, though, compare the options.
Remember that you can only open one ISA in a given financial year, but you can then transfer it into another ISA account, perhaps one offering better returns.
How much should I save in instant access?
If you're using an easy-access savings account to stash your emergency fund, typical advice is to try to build up enough to cover your salary for between three and six months.
If you can't afford to put quite that much aside, just save what you can - any savings are better than none. Think of it as a cushion - the thicker the better!
Some of the top-rate, easy-access accounts require a minimum deposit, sometimes as high as £1,000. If you dip beneath that amount then you won't earn the advertised rate of interest.
But there can be very good options with a minimum deposit of just £1, so think carefully about how much you plan to keep stashed away. Then, compare a range of accounts so you can be sure you've chosen the right product and that it's paying the best rate possible.
HOW SAFE IS MY MONEY IN AN EASY ACCESS ACCOUNT?
It’s important to check that any savings provider you use is covered by the Financial Services Compensation Scheme (FSCS).
The FSCS is a protection scheme, and means that if a provider goes out of business, the first £85,000 you have saved with them is safe and will be returned to you.