Everything you need to know about UK high interest savings accounts

If you’ve been hanging out on this blog for a while, you will know how much I harp on the importance of saving money. In these times of economic doom where recession and inflation are running the show, we need to be clever about how we spend our income, and even use the increasing interest rates to our advantage. This is where high interest savings accounts come into play: this is the perfect time to make your money earn more money, and earn passive income through interest.

What we’ll cover

Disclosure: There are some affiliate links below and I may receive commissions for purchases made through links in this post, but these are all products I highly recommend. I won’t put anything on this page that I haven’t verified and/or personally used.

What Is a High Interest Savings Account?

A high interest savings account is exactly what it says on the tin – a savings account that offers a higher interest rate than a traditional savings account. These accounts typically offer higher interest rates because they are offered by online banks or credit unions that don’t have the same overhead costs as brick-and-mortar banks.

The interest rates they offer vary a lot depending on the economic environment we are in – and if there is one good thing about a recession, it’s that borrowing money is more expensive, and therefore if you store your money in high interest bank accounts (which is essentially loaning your money) you get a chance to earn more on interest income.

Pros and Cons of High Interest Savings Accounts

Pros

  • Higher interest rates: the biggest advantage of a high interest savings account is the higher interest rate you’ll earn on your savings.
  • Insurance: people’s savings are protected by the Financial Services Compensation Scheme (FSCS). The FSCS is an independent organization set up by the UK government to provide a safety net for consumers in case their bank, building society, or credit union goes out of business or becomes insolvent. The FSCS can provide compensation of up to £85,000 per eligible person per financial institution, and this amount is set by the government and reviewed periodically.
  • Easy access: many high interest savings accounts offer easy access to your money, allowing you to withdraw funds when you need them.
  • No fees: some high interest savings accounts have no monthly maintenance fees or minimum balance requirements, making them an attractive option for those looking to avoid fees.
  • No minimum balance: most high interest savings accounts have no minimum balance requirement, so you can open an account with as little as £1. This makes it easy for anyone to start saving, regardless of their income or financial situation.

Cons

  • Limited withdrawals: some high interest savings accounts limit the number of withdrawals you can make per month, which can be inconvenient if you need to access your funds frequently.
  • Online-only: many high interest savings accounts are offered by online banks or credit unions, which may not be as accessible as traditional brick-and-mortar banks.
  • Interest rates may fluctuate: while high interest savings accounts generally offer higher interest rates than traditional savings accounts, the rates are not guaranteed and may fluctuate over time. It’s important to keep an eye on your account and be prepared for changes in the interest rate.
high interest savings account

The Different Types of High Interest Savings Sccounts in the UK

Easy-access Savings Accounts

An easy-access savings account is a type of account that allows you to deposit and withdraw money whenever you want, without any restrictions or penalties. These accounts typically offer lower interest rates than other types of savings accounts, but they provide more flexibility and convenience for customers. 

The pros of easy-access savings accounts include the ease of access and the ability to withdraw money without any restrictions. Additionally, these accounts often have no minimum balance requirements, making them accessible to everyone. The cons of easy-access savings accounts include the lower interest rates and the potential for customers to dip into their savings too often, reducing the amount of money they can save over time.

Notice Savings Accounts

A notice savings account is a type of account that requires you to give a certain amount of notice before withdrawing your money. This notice period can range from a few days to several months, depending on the account terms. Notice savings accounts typically offer higher interest rates than easy-access savings accounts, but they also have more restrictions on when and how you can withdraw your money. 

The pros of notice savings accounts include the higher interest rates and the potential to earn more money on your savings. Also, these accounts can help customers save money by limiting their ability to withdraw funds too often. The cons of notice savings accounts include the requirement to give notice before withdrawing money and the potential for penalties if you withdraw money without proper notice.

Fixed-term Savings Accounts

A fixed-term savings account is a type of account that requires you to deposit money for a set period of time, usually anywhere from six months to five years. During this time, you cannot withdraw your money without penalty, and you typically earn a higher interest rate than you would with an easy-access or notice savings account. 

The pros of fixed-term savings accounts include the higher interest rates, and their discourage customers to withdraw funds too often. The cons of fixed-term savings accounts include the requirement to keep your money in the account for a set period of time and the potential for penalties if you withdraw money before the end of the term. Additionally, if interest rates increase during the fixed term, customers may miss out on the opportunity to earn a higher rate of interest.

Regular Savings Accounts

Regular savings accounts are a type of savings account that requires you to deposit a set amount of money into the account on a regular basis, usually on a monthly basis. These accounts typically offer higher interest rates than easy-access savings accounts, but they often come with restrictions on withdrawals. 

The pros of regular savings accounts include the ability to save money on a regular basis and the higher interest rates that these accounts often offer. Additionally, some accounts may offer incentives or bonuses for customers who make regular deposits. The cons of regular savings accounts include the restrictions on withdrawals and the potential for penalties if you miss a deposit.

Cash ISAs

A Cash ISA, or Individual Savings Account, is a tax-free savings account that allows you to save up to a certain amount each year. These accounts are offered by a range of different providers, including banks and building societies. 

The pros of Cash ISAs include the ability to save money tax-free and the wide range of accounts and providers available. Additionally, some accounts may offer higher interest rates than other types of savings accounts. The cons of Cash ISAs include the limits on how much you can save each year and the potential for penalties if you withdraw money from the account before the end of the term.

Fixed-Rate Bonds

Fixed-rate bonds are a type of savings account that require you to deposit your money for a set period of time, usually ranging from one to five years. These accounts offer a fixed interest rate, which is guaranteed for the entire term of the account. 

The pros of fixed-rate bonds include the ability to earn a higher interest rate than other types of savings accounts and the guarantee that the interest rate will not change during the term of the account. Additionally, these accounts can help customers save money by limiting their ability to withdraw funds too often. The cons of fixed-rate bonds include the requirement to keep your money in the account for a set period of time and the potential for penalties if you withdraw money before the end of the term.

Regular Savings Bonds

Regular savings bonds are similar to regular savings accounts, but they offer a fixed interest rate, which is guaranteed for the entire term of the account. These accounts require you to make regular deposits into the account, usually on a monthly basis. 

The pros of regular savings bonds include the ability to save money on a regular basis and the higher interest rates that these accounts often offer. Additionally, the fixed interest rate can help customers plan their savings and budget their expenses. The cons of regular savings bonds include the restrictions on withdrawals and the potential for penalties if you miss a deposit or withdraw money in advance of the term. Additionally, some accounts may require a minimum deposit or have other fees or charges.

best saving account

What Are the Best High Interest Savings Accounts in the UK?

If you are looking for the most complete and thorough list of the best high interest savings accounts out there, then you should definitely check out Money Saving Expert‘s page on what accounts have the highest interest rates, and the conditions for each of them.

Do take some time to read through the incredible amount of information he put in the blog post, as there is a lot there for you to consider… however, ultimately, my advice is not to think too much about which account is *perfect* for you. If you find yourself overthinking this, just pick one!, and make sure you can fulfil their terms and conditions (eg: any minimum payments, and withdrawal limitations).

As long as you’re saving money and earning interest on it, everything else is just nuance!

Another resource I recommend you to is an app called Plum: I have been using it since 2018 and it has helped me save a lot of money since then. It has a clever algorithm that estimates how much you can afford to save every week based on your bank balance and average expenditure, and it automatically transfers those savings into a savings, pension, or investment account of your choice. This includes an Easy Access Savings account that accrues interest income.

If you don’t know where to start, and you don’t want to spend hours faffing around on the internet researching bank accounts, Plum is a great place to get the ball rolling as you start saving regularly and accruing interest income.

Conclusions

Overall, the type of high interest savings account that is best for you will depend on your individual needs and circumstances. It’s important to compare different accounts and providers to find the one that offers the best interest rate and features for your savings goals.

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About the author : Susie Italiano

high interest savings account uk
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