It can be a good idea to have a few different savings accounts to suit your goals. For example, you could use one savings account to cover unexpected costs, one to save up for a holiday, one to build up a home deposit, and so on.
Savings accounts tend to differ in 3 main ways:
| Account type | Key features | Good for? |
|---|---|---|
| Instant access savings accounts (sometimes called easy access) | Fast or immediate access to your money, but the interest rates on offer are often low. | Money you don’t need for day to day expenses, but that you might need at short notice for emergency or unexpected expenses. |
| Regular or easy access savings account | Often come with rules about minimum monthly deposits, or maximum withdrawals, but may offer a slightly higher interest rate in return. | Putting aside a proportion of your monthly income. |
| Notice accounts | You must give notice of your intention to make a withdrawal. Depending on the account, the notice period can range from a few days to as much as 180 days. In return, they can offer more attractive interest rates. | Putting away money to meet longer term savings goals. |
| Fixed rate savings (also called term deposits) | You may get a better interest rate than a regular savings account. Your money is ‘locked in’ and inaccessible for a fixed period of time, from a few days to several years. They usually require a minimum investment, and there may be a penalty for accessing your money early. They offer higher interest rates than many other savings accounts. | Depositing funds that you know you aren’t going to need for a while. Can also be suitable for meeting longer term savings goals. |
| Investments | Comes with the risk that you might not get back what you invest. But if you’re able to set your money aside for 5 years or more, investing in funds or shares has the potential to make your money work harder than than it would in a savings account. | Setting aside money you're not going to need for years, such as your retirement savings. |
| Account type | Instant access savings accounts (sometimes called easy access) | Instant access savings accounts (sometimes called easy access) |
|---|---|---|
| Key features | Fast or immediate access to your money, but the interest rates on offer are often low. | Fast or immediate access to your money, but the interest rates on offer are often low. |
| Good for? | Money you don’t need for day to day expenses, but that you might need at short notice for emergency or unexpected expenses. | Money you don’t need for day to day expenses, but that you might need at short notice for emergency or unexpected expenses. |
| Account type | Regular or easy access savings account | Regular or easy access savings account |
| Key features | Often come with rules about minimum monthly deposits, or maximum withdrawals, but may offer a slightly higher interest rate in return. | Often come with rules about minimum monthly deposits, or maximum withdrawals, but may offer a slightly higher interest rate in return. |
| Good for? | Putting aside a proportion of your monthly income. | Putting aside a proportion of your monthly income. |
| Account type | Notice accounts | Notice accounts |
| Key features | You must give notice of your intention to make a withdrawal. Depending on the account, the notice period can range from a few days to as much as 180 days. In return, they can offer more attractive interest rates. | You must give notice of your intention to make a withdrawal. Depending on the account, the notice period can range from a few days to as much as 180 days. In return, they can offer more attractive interest rates. |
| Good for? | Putting away money to meet longer term savings goals. | Putting away money to meet longer term savings goals. |
| Account type | Fixed rate savings (also called term deposits) | Fixed rate savings (also called term deposits) |
| Key features | You may get a better interest rate than a regular savings account. Your money is ‘locked in’ and inaccessible for a fixed period of time, from a few days to several years. They usually require a minimum investment, and there may be a penalty for accessing your money early. They offer higher interest rates than many other savings accounts. | You may get a better interest rate than a regular savings account. Your money is ‘locked in’ and inaccessible for a fixed period of time, from a few days to several years. They usually require a minimum investment, and there may be a penalty for accessing your money early. They offer higher interest rates than many other savings accounts. |
| Good for? | Depositing funds that you know you aren’t going to need for a while. Can also be suitable for meeting longer term savings goals. | Depositing funds that you know you aren’t going to need for a while. Can also be suitable for meeting longer term savings goals. |
| Account type | Investments | Investments |
| Key features | Comes with the risk that you might not get back what you invest. But if you’re able to set your money aside for 5 years or more, investing in funds or shares has the potential to make your money work harder than than it would in a savings account. | Comes with the risk that you might not get back what you invest. But if you’re able to set your money aside for 5 years or more, investing in funds or shares has the potential to make your money work harder than than it would in a savings account. |
| Good for? | Setting aside money you're not going to need for years, such as your retirement savings. | Setting aside money you're not going to need for years, such as your retirement savings. |
When you put money into a savings account, the interest is the rate your bank or financial institution will essentially pay you for keeping your money with them.
Choosing the right savings option often requires a balancing act between the interest rate offered, and the terms and features it comes with. For example, savings accounts offering higher interest rates may require you to:
By contrast, a flexible savings account, offering instant access, is likely to offer a lower interest rate.
Where you choose to deposit your savings will depend on what you're saving for. If you're building an emergency savings fund, for example, you'll probably want to be able to access your money immediately if needed, so an account offering instant access would be important. However, if you're saving towards a deposit for a house, an account offering higher interest, but requires you to give notice to access your savings, may be a better option.
Interest may also be applied when you borrow money, for example with a loan. This is essentially the cost of lending the money, which you'll need to pay back on top of the money you've borrowed.
Compound interest is interest earned on previously earned interest.
The longer you save, the more the interest you earn compounds.
Here’s an example:
Let’s say you make a regular deposit of £50 each month (that’s £600 a year) into a savings account, earning 3% interest annually. After one year, you'll earn £9.71 interest. By the end of the third year, however, you have £84.55 in interest, because you earn interest on the total balance (that already includes interest earned in the first two years).
| Year | Deposits | Year Interest | Total Interest | Balance |
|---|---|---|---|---|
1 |
£600 | £9.71 | £9.71 | £609.71 |
| 2 | £1200 | £28.00 | £37.71 | £1237.71 |
| 3 | £1800 | £46.84 | £84.55 | £1884.55 |
| 4 | £2400 | £66.24 | £150.79 | £2550.79 |
| 5 | £3000 | £86.23 | £237.02 | £3237.02 |
| 6 | £3600 | £106.82 | £343.84 | £3943.84 |
| 7 | £4200 | £128.02 | £471.86 | £4671.86 |
| 8 | £4800 | £149.86 | £621.72 | £5421.72 |
| 9 | £5400 | £172.36 | £794.08 | £6194.08 |
| 10 | £6000 | £195.53 | £989.61 | £6989.61 |
| Year |
1 |
1 |
|---|---|---|
| Deposits | £600 | £600 |
| Year Interest | £9.71 | £9.71 |
| Total Interest | £9.71 | £9.71 |
| Balance | £609.71 | £609.71 |
| Year | 2 | 2 |
| Deposits | £1200 | £1200 |
| Year Interest | £28.00 | £28.00 |
| Total Interest | £37.71 | £37.71 |
| Balance | £1237.71 | £1237.71 |
| Year | 3 | 3 |
| Deposits | £1800 | £1800 |
| Year Interest | £46.84 | £46.84 |
| Total Interest | £84.55 | £84.55 |
| Balance | £1884.55 | £1884.55 |
| Year | 4 | 4 |
| Deposits | £2400 | £2400 |
| Year Interest | £66.24 | £66.24 |
| Total Interest | £150.79 | £150.79 |
| Balance | £2550.79 | £2550.79 |
| Year | 5 | 5 |
| Deposits | £3000 | £3000 |
| Year Interest | £86.23 | £86.23 |
| Total Interest | £237.02 | £237.02 |
| Balance | £3237.02 | £3237.02 |
| Year | 6 | 6 |
| Deposits | £3600 | £3600 |
| Year Interest | £106.82 | £106.82 |
| Total Interest | £343.84 | £343.84 |
| Balance | £3943.84 | £3943.84 |
| Year | 7 | 7 |
| Deposits | £4200 | £4200 |
| Year Interest | £128.02 | £128.02 |
| Total Interest | £471.86 | £471.86 |
| Balance | £4671.86 | £4671.86 |
| Year | 8 | 8 |
| Deposits | £4800 | £4800 |
| Year Interest | £149.86 | £149.86 |
| Total Interest | £621.72 | £621.72 |
| Balance | £5421.72 | £5421.72 |
| Year | 9 | 9 |
| Deposits | £5400 | £5400 |
| Year Interest | £172.36 | £172.36 |
| Total Interest | £794.08 | £794.08 |
| Balance | £6194.08 | £6194.08 |
| Year | 10 | 10 |
| Deposits | £6000 | £6000 |
| Year Interest | £195.53 | £195.53 |
| Total Interest | £989.61 | £989.61 |
| Balance | £6989.61 | £6989.61 |
The earlier you start saving, the more time you have to earn compound interest. It’s a good idea to make regular deposits, if you can, to keep your money growing. It’s also a good idea to avoid taking money out of your savings account as that reduces the amount of interest you can earn.
Your eligible deposits with HSBC Bank plc are protected up to the limit of your local Compensation Scheme.
