In general, savings accounts are investments held at a bank or financial institution that earn interest. In return for a longer term investment, the bank pays a slightly higher rate of interest than would be found in a current account. This type of account is popular with people who want to save for something long-term, or simply wish to put money away for the future. There are several types of savings accounts with varying interest rates and degrees of flexibility. These are explained below.
What is a savings account?
- Investment term
The investment term is the period in which your money remains in a savings account in order for it to maximise the interest accrued. It is often possible to withdraw your investment before completion of the stated term, however, this may incur costs and/or penalties that will diminish your return.
- Interest payments
Interest payments for savings accounts are normally made monthly or yearly. Savings accounts with monthly interest payments normally offer a lower interest rate than a savings account with an annual interest payment.
- Compound interest
Put simply, compound interest may be thought of as “interest on interest”. This means that you will earn interest on the principal, plus the interest you have already earned. The amount accrued depends upon the frequency of compounding with higher frequencies bringing greater returns.
- Fixed and variable interest rates
Savings accounts typically offer either fixed or variable interest rates. Fixed interest rates are found on products such as fixed-rate bonds where the interest rate is guaranteed for the duration of the term—so you know exactly how much you will receive at the end. By contrast, variable interest rates rise and fall in line with the official rate of interest set by the bank of England.
When considering opening a savings account, it is important to understand the key aspects that distinguish the many and varied products currently available. Factors to consider include the term and notice period required to access your money, the type and rate of interest, and the type of account offered by the individual bank
Types of savings accounts
- Standard savings account
A standard savings account offers the highest flexibility as it provides instant access to your money and the option to add funds at any time. However, this type of easy access account usually offers a lower interest rate due to the flexibility for the customer.
- Fixed rate savings accounts and fixed rate bonds
Fixed rate savings accounts offer a higher rate of interest than instant access accounts. However, they usually require a lump sum deposit, and it is usually not possible to add further funds during the term. Additionally, there is usually a fee for early withdrawal.
- Notice account
Notice accounts require advance notice before money is withdrawn. Usually this is between 30 and 90 days and the bank will normally request the specific amount you intend to withdraw. However, because the bank or building society has this notice period, they are able to offer a higher interest rate.
The Raisin platform
With Raisin, finding the best online savings account is simple. We provide easy access to the best savings accounts across Europe. Thanks to our intuitive platform, you can easily compare different products and find the one that is right for you. It is simple to set up and all your funds are managed online from one location — making it hassle free. Additionally, all funds are secured by the national deposit guarantee scheme so you can save your money with complete peace of mind. What’s more, Raisin is completely free, with no hidden charges down the line. So, find the best online savings accounts and make the most of your savings with Raisin.