If you want to build up your savings but still want the flexibility of immediate access to your money, an easy access savings account is for you.
An easy (or instant) access savings account is a bank account that offers you some interest on your savings, but gives you immediate (or within 2-3 days), penalty-free access to your funds when you need them.
The interest rate on easy access savings accounts is usually one of the lowest out of all savings accounts (around 1% right now, versus 2% for a fixed-rate cash ISA), but you get a lot more flexibility instead.
Furthermore, with the recent introduction of the personal savings allowance (PSA), most people won’t pay tax on the interest from an easy access savings account: basic-rate (20%) income taxpayers don’t pay tax on the first £1,000 of interest, while higher-rate (40% or 41% in Scotland) tax payers can earn £500 from their savings before paying tax.
If you have some extra money laying around, and you’re not sure what to do with it, putting it in an easy access savings account is probably a good first step. (Be aware that some account providers do limit the number of penalty-free withdrawals you can make per year, however.)
If easy access to your money is the most important thing, then an easy access savings account is worth considering.
With an interest rate of around 1%, your returns from an easy access savings account won’t ever be huge. It’s probably better than leaving your money in a current account with 0% interest, though. If you don’t need instant access to your funds, it’s worth considering another savings product with a higher rate of interest, such as a fixed-rate cash ISA or stocks and shares investment ISA.
If you opt for an easy access savings account, the main variables to consider are the interest rate and whether there’s a minimum deposit amount: some accounts can be opened with £1, while others might require £1,000 or even £10,000.
As with all savings products you should make sure the provider is covered by the Financial Services Compensation Scheme (FSCS).
As the name implies, an instant access savings account lets you withdraw your money immediately at any time, with no penalties. You could transfer your money online to one of your other accounts, or visit a branch to withdraw your funds in cash.
Easy access savings accounts usually allow you to withdraw money without penalties, but you won’t have immediate access to your funds. Most easy access accounts force you to pay in from and withdraw to a linked bank account, such as a current account from the same provider – and sometimes there’ll be a processing period of a few days when paying in or withdrawing from the savings account.
Most instant and easy access savings accounts have no cap, though you might earn a different amount of interest depending on how much you have in there. The Natwest Instant Saver account, for example, has one rate of interest for £1 to £24,999, another for £25,000 to £999,999, and yet another for £1,000,000+.
Many instant and easy access savings accounts give you the choice of having your interest paid out monthly or annually.
Every instant and easy access savings account has to advertise its AER – its annual equivalent rate of interest. This is the gross amount of interest that would be earned by your funds in a year – but before any tax deductions. Unless you’re in the additional rate (45%) income tax bracket, though, your personal savings allowance (PSA) will likely cover any interest you earn from an instant access savings account.
Some easy and instant access savings accounts come with a temporary bonus interest rate – for example, an additional 1% of interest for the first 12 months. After the promotional period your interest rate will drop back down – usually to an interest rate below a normal, non-bonus savings account.
If you opt for a bonus savings account, make sure you set a calendar reminder for the end of the promotional period and consider moving your money elsewhere.
You can usually withdraw your money from an instant access account immediately. However, that doesn’t necessarily mean that the money will arrive in your account instantly. Bank transfers can take a day or two to process, so factor that in if you are going to need your money by a particular date.
Money saved in an easy access account is usually protected by the FSCS (up to £85,000). This isn’t always the case, though, so be sure to look for the FSCS logo, which is usually prominently featured on the supplier’s website and other marketing materials.
Interest tends to accrue on a monthly basis, but it may only be paid out annually. If you want an account that pays interest every month, check the T&Cs carefully.
There’s no limit to the number of easy access savings accounts you can have. Of course, if you want to manage your money as efficiently as possible, you should ensure that your deposits are held in the accounts with the highest interest rate. And, if your deposit exceeds £85,000, you should place the excess with a different banking group offering the next best rate of interest.
Banks use our deposits, alongside other money that they borrow, to make investments, which provide them with the money required to pay any interest they have guaranteed on savings. The longer they hold customer deposits, the greater their opportunity for profitable investments. Since banks must keep funds available for withdrawal at any point, for easy access customers their investment opportunities are far more limited – which is reflected by the low interest rate.