How to choose a savings account
In this guide
Savings or ISA?
So, you want to start saving, and need to choose a type of savings account.
Before you decide which one is right for you, you may want to consider a couple of things.
A savings account and an Individual Savings Account (ISA) each offer many benefits. However, one may be more suitable for your circumstances than the other. You may want to compare the differences before choosing. We’ve summarised some of the differences here:
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Savings |
ISAs |
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You may pay tax on your interest, depending on the amount of interest earned and your earnings. |
Any interest earned on an ISA is tax-free*. |
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Different savings accounts have different limits on how much can be saved in them. |
Save up to £20,000 in the current tax year. Some ISAs allow transfers in of previous years ISA allowances too. |
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You can choose between: |
You can choose between:
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You can open multiple savings accounts, but some will only allow you to open one account. |
You can save in multiple ISAs of the same type in each tax year (apart from lifetime ISAs). However, some providers may only allow you to save in one cash ISA with them. |
How long do you want to save for?
Thinking about how long you want to save for will help you decide what account is more suitable.
Do you need access to your money?
Some savings accounts don’t allow you to withdraw money, or they may limit the number of withdrawals you can make. You may want to consider if you want to access your savings before deciding which account to open.
What’s the interest rate?
The interest rate is the amount you earn from your savings and depending on the account you choose this could be paid monthly, annually or at the end of the term. As it can vary, you may wish to explore which option suits your needs.
Will you need to pay tax?
Any interest earned on an ISA is tax-free*. However, if you have a savings account which isn't an ISA, you may need to pay tax on the interest you earn. The UK Government sets allowances for each financial year which will determine whether you need to pay tax. This is based on the amount of interest you earn and your income.
The information in this guide was accurate when published.
*Tax-free means the interest you earn isn’t subject to UK Income Tax and Capital Gains Tax. Tax treatment depends on your individual circumstances and could change in future.
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