Introduction

Savings accounts are a facility for you to safely store your hard earned cash. Setting up a savings account is probably the simplest way to make your money work harder and earn interest. Unlike a current account, which is designed for your money to flow in and out quite regularly, a savings account does what it says on the tin – saves your money. The bank or building society will hold onto your money for you, and it will earn a living by lending this out to other customers. Since the bank makes a profit on your money, they share some of this with you by paying you interest. And unlike current accounts, some savings accounts can require several months notice for a withdrawal, or have an interest structure that mean you lose out if you withdraw your money before a certain term.

This means that there is little risk that all bank customers will suddenly withdraw their funds, leaving the bank in a lurch. And there are generally less transactions per customer, meaning lower administrative costs. This affords the bank a certain amount of generosity with interest payments, which is why savings accounts typically come with higher interest payments than current accounts.

There are savings accounts that offer between 4% - 5% AER, or annual equivalent rate, so it is well worth setting up an account if you can afford to do so. This is the rate of interest that the bank will pay to you over a 12-month period. But buyer beware – some banks will quote a different rate depending on how much money you plan on having in your account.

If you don’t have any spare cash to save, then a savings account is probably going to prove too restrictive, and you are better off sticking with a current account.