Savings account basics

What is a savings account?

A savings account is somewhere to put your money aside so it can grow in value. Each savings account will pay you a rate of interest. Interest rates are shown as a percentage of the amount you save over a year. So if you put £100 into a savings account with a 1% interest rate, you'd have £101 a year later.

Benefits of a savings account

Fighting against inflation

Inflation is the rate at which money loses its value over time. The lower the rate of interest you get on your cash, the worse the effect of inflation. That’s why it’s important to think about the rate of interest you’re getting on your cash.

Over the course of a year, if the rate of interest you get on your cash is lower than the rate of inflation, your money will lose spending power. If the rate of interest you get is higher than the rate of inflation, your money will gain spending power.

Low risk

Savings accounts are a low-risk way to save money. Unlike investing, your cash savings cannot go down in value.

Should I save or invest?

Cash savings are best for goals you have within the next five years. Whereas investing is better suited for money you can leave for at least five years.

Why?

Investments go up and down in value which means you may not get back what you put in, particularly when investing over a period shorter than five years. Cash savings don’t go down, instead, the value of cash savings often struggles to keep up with rising prices, that’s inflation. If your interest rate is lower than the rate of inflation you can lose money in real terms, particularly over a longer period of time.

More on whether you should save or invest

How much should I save?

The amount you need to save will depend on your goals and circumstances. But a good place to start is emergency savings, as everyone needs them. You should keep at least three to six months’ worth of living expenses as your emergency fund if you’re still working. If you’re retired, you should consider keeping one to three years’ worth.

Beyond your emergency savings, you should tailor your amount to your needs.

More on how much cash you should hold

Different types of savings account

You’ll find different types of savings accounts useful depending on what you need the money for. You can hold as many different accounts as you like.

Instant and easy access

Withdraw your money whenever you want to, however many times you want to. Withdrawals from easy access accounts usually take up to one working day.

Limited access

They’ll often give you a better rate than an instant or easy access account, but there will be limitations on how many withdrawals you can make, or how much you can withdraw.

Fixed rate

Lock your money up for an agreed time period and get a fixed interest rate. You can’t usually withdraw your money until the term ends, but in return you’ll usually get a higher rate of interest. Plus, because the term and the rate are fixed, you’ll know exactly how much you’ll get in return, and when. This makes them a great tool for planning when you’ll need the cash back.

Savings platform

Combine all of the above, through one online account. Banks and building societies can offer their savings accounts through a savings platform like Active Savings.

By opening a single account with a savings platform, you can spread money across multiple banks, and across easy access, limited access, and fixed rates. That means you don’t have to juggle loads of logins, or spend time opening new accounts when you see a rate you like.

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This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 212214).