Interest rates are continuing to rise and while this might not be good news for borrowers, it’s certainly good news for savers. Savings rates have remained low for several years now, but they are finally starting to become more competitive, which means it’s the perfect time to look for a new home for your savings. Here’s all you need to know about opening a new savings account.
What type of account do you want to open?
Before opening a savings account, it’s crucial to consider what type of account you want to open. There are several types of accounts to choose from and they all work slightly differently, so it’s important to think about what is best for you. Below is a quick outline of the different types of savings accounts:
Easy access savings accounts. Allows you to top up your funds and access them whenever you need to. You’ll also receive interest on your balance.
Fixed rate bonds. You’ll need to lock away your funds for a set term of between 6 months and 5 years. In return, you’ll earn a higher rate of interest. You can’t usually top up your savings during the term, so bonds are best suited for those with a lump sum to invest.
Notice accounts. You can access your money provided you give a certain number of days’ notice. The amount of notice required will depend on the account. You will usually earn a better rate of interest compared to an easy access account.
Regular savings accounts.. You will be required to pay in a set amount each month, typically for 12 months. You usually won’t be able to access your money during this time, but this varies depending on the account.
Cash ISAs. You won’t pay any tax on the interest you earn in this account. You can typically choose from easy access and fixed rate cash ISAs.
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You can usually open a savings account in branch, online, via post, over the phone or by using the provider’s app. Exactly where you can open your chosen account will depend on the savings provider and the type of account. When comparing accounts, it’s important to check this. After all, there’s no point picking an account only to discover it must be opened in branch and there are no branches in your area. There are also app-only savings accounts that can only be opened and managed via the app.
In most cases, you’ll be required to fill in a short application form. This might be online or you might be required to send it by post. Alternatively, someone might be able to help you fill it in over the phone or in branch. You will usually be required to provide your full name, date of birth, address history and contact number.
Which documents are required?
As well as providing personal details, you will usually be required to provide proof of ID and proof of address, unless you’re already a customer with that particular bank/building society.
For proof of ID, you will usually be asked to provide a valid UK passport or driving licence. For proof of address, you will usually need to provide a utility bill, council tax bill, bank statement or mortgage statement. If you’re applying online, some accounts will accept your documents electronically. Otherwise, you might have to pop into your local branch with them.
How to open a joint savings account
Joint savings accounts can be opened in much the same way as individual savings accounts, but you will usually need to provide proof of ID and address for both of you.
Note that not all savings accounts can be opened on a joint basis. But if you are planning to open one, it’s important to be sure you completely trust your partner. That’s because both of you will be able to access the funds in the account. If you’re concerned about this, some accounts will let you set them up so that you both need to authorise any transactions, which means both of you will need to agree before any withdrawals can be made. Learn more and compare joint savings accounts here.
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Many savings accounts can be opened with as little as £1
Cons
The best interest rates usually apply to accounts that require you to tie up your money
Some accounts have variable interest rates, meaning your rate can go up or down
You may need to meet certain eligibility criteria to open one
Bottom line
Opening a savings account is usually pretty straightforward and with interest rates continuing to rise, deals are becoming more competitive. You can use a savings account to put money aside for emergency expenses to save for the future or for a particular purchase such as a new car or holiday. Just be sure to research your options carefully so that you choose the right type of savings account for you. You can compare a range of savings accounts here.
Frequently asked questions
Yes, as long as the bank or building society you're considering is authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA), it must protect customer deposits under the Financial Services Compensation Scheme (FSCS).
This means that up to £85,000 per person, per banking institution, will be covered in the event the bank went bust. This rises to £170,000 for joint accounts.
Many savings accounts (particularly easy access accounts) can be opened with as little as £1. However, some accounts will require a larger deposit, potentially a few hundred or a few thousand pounds, so make sure you check first.
Thanks to the personal savings allowance, basic rate taxpayers can earn up to £1,000 in savings interest without paying tax, while higher rate taxpayers can earn up to £500. Additional rate taxpayers do not receive a personal savings allowance.
You can open as many savings accounts as you like, meaning you can have different accounts for different purposes.
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio
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