Opening a savings account: key things to consider

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The rundown
  • Deposit protection: Up to £85,000 of savings in a UK-regulated bank (€100,000 if the bank is registered in Europe) are protected if the institution fails and cannot repay the claims made against it
  • Tax: Basic rate taxpayers can earn up to £1,000 in savings interest without paying tax, while higher rate taxpayers can receive up to £500 in tax-free interest
  • No limits: You can open as many savings accounts as you want; having multiple savings accounts can help you to achieve different savings goals

Are my savings safe?

The recent economic turbulence in the UK has had a significant impact on many people’s personal finances, affecting everything from mortgages to pensions. While the situation appears to have stabilised over the last few months, it’s understandable that people may be wondering if their money is still safe in the bank

Generally speaking, the answer is “yes”.

The Financial Services Compensation Scheme (FSCS) covers all UK-regulated current or savings accounts and cash ISAs. This applies to accounts you have with banks, building societies and credit unions. The FSCS was created by the UK government and is an independent FCA (Financial Conduct Authority)-regulated fund. 

The scheme promises that if your UK-registered and -regulated bank, building society or credit union collapses, you will get some of your money back. This is not dependent on either your age or where you currently live. 

However, it’s important to note that the amount you can claim through this compensation scheme is limited. If your bank collapses, you can currently claim up to £85,000 per person, per financial institution (or £170,000 for joint accounts). If you have savings over this limit, it’s wise to spread them across multiple financial institutions to ensure they’re covered by the scheme.

Meanwhile, deposits in European-regulated banks are covered by the European Deposit Guarantee Scheme (DGS), which protects up to €100,000 (or the equivalent amount in a European country’s local currency) if the financial institution fails. A separate initiative known as the Swedish Deposit Protection Scheme applies to banks registered in Sweden.

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Is my money protected in a savings account?

Your money is protected if it’s held in a savings account with a UK-regulated bank or a registered European bank. If you choose to open a savings account with an unregulated institution, your deposit won’t be protected under the FSCS or relevant deposit protection guarantee scheme and you could lose your money if the bank fails.

The safest savings accounts are therefore those that are offered by UK or European-regulated banks, building societies and credit unions. If you want to open a savings account and aren’t sure whether your money will be safe, simply look for the FSCS or European DGS logo next to the name of the bank or savings account you’re interested in. 

At Raisin UK, all of the savings accounts we offer are covered by the FSCS or DGS, so you can rest assured that your money is protected should the worst happen.

Tax on savings interest

The majority of UK savers won’t pay tax on the savings interest they earn. Thanks to the personal savings allowance (PSA), basic rate taxpayers can earn up to £1,000 per year tax-free. For higher rate (40%) taxpayers, it’s £500. As additional rate taxpayers aren’t eligible for a PSA, all of the interest they earn on their savings is taxable.

However, with UK interest rates rising over recent months, more people could soon find themselves earning enough interest to generate a tax bill. It’s therefore important to review your savings strategy regularly and, if appropriate, consider utilising tax-free savings options like ISAs.

Do savings affect my benefits?

Yes, savings can affect your entitlement to certain means-tested benefits if you have over a certain amount saved. The main benefits that are affected by income and savings include:

  • Universal Credit
  • Working Tax Credits
  • Child Tax Credits
  • Council Tax Support
  • Jobseekers’ Allowance
  • Income Support
  • Housing Benefit
  • Pension Credit.

If you have less than £6,000 in savings, you’ll be eligible for your full benefit amount. However, if you have savings of between £6,000 and £16,000, you stand to lose some of your benefits. Anyone with more than £16,000 in savings won’t be eligible for any means-tested benefits. 

Working out how your savings may affect your benefits isn’t always easy. You can learn more about the savings and benefits rules here or visit gov.uk for further help and advice.

If you do decide to grow your savings, visit the Raisin marketplace to compare competitive online savings accounts from a range of partner banks.

Do savings accounts affect my credit score?

The short answer is no, savings accounts don’t affect your credit score. Because consumer credit reports don’t include savings accounts and no borrowing or debt is involved, savings accounts have no impact on your credit rating. Applying for and opening a savings account will not show up on your credit report, and neither will any deposits or withdrawals you make. However, opening multiple new accounts with separate banks or building societies in a short period of time can affect your credit score.

A credit rating or credit score is essentially a numerical expression based on your credit history which can determine your creditworthiness before a financial institution allows you to take on certain financial responsibilities.

Financial institutions develop your credit rating from consumer credit reports, considering any credit cards, loans (including Hire Purchase Agreements) and unpaid accounts or bankruptcy filings in your name.

How much money should I have in savings?

The amount of money you should have in savings will depend on what it is you’re saving for and how much you can afford to put away. The recommended amount for common savings goals can be seen below: 

 

  • Retirement – If you want to enjoy a comfortable retirement, advisors usually suggest saving ten times your annual salary. For example, if you earn £28,000 per year, you’d be encouraged to save £280,000 for retirement. In addition to a pension, long-term savings accounts like fixed rate bonds can be a good option for anyone wanting to boost their retirement pot. You can learn more about saving for retirement here
  • Wedding – The average UK wedding costs £30,000, which gives you a figure to work from depending on your budget and what you want from your special day. If you’d like the flexibility to access your savings at any time, an easy access account might be right for you. You could also consider a notice account, which combines the flexibility of easy access with the more competitive interest rates of a fixed rate bond. Alternatively, if you have a lump sum to invest and aren’t getting married any time soon, a fixed rate bond can be a great way to save for a wedding.
  • House deposit – The larger the house deposit you put down, the less you’ll pay back in terms of your mortgage. Having a 15% deposit or more could help you secure the best bank rates. Again, notice accounts and fixed rate bonds pay competitive interest rates that can help you to grow your savings faster. If you’re a first-time buyer, you might also want to consider a Lifetime ISA. Learn more about saving for a mortgage.

 

Whether you’re saving for something specific or you simply want to build an emergency fund, the earlier you open a savings account the longer your money will have to grow. Discover how to compare savings here or visit the table at the top of this page to start your search.

How many savings accounts can I have?

You can have as many savings accounts as you like, and it’s something worth considering. For example, you could open a fixed rate bond for long-term savings and have an emergency pot in an easy access account that you can dip into as and when you need to. You might also consider a notice account if you’re saving for something like a big holiday or a new car.

FSCS or deposit-protected savings accounts will cover your money up to £85,000 per person, per banking group, so if you have more than this it’s advisable to spread your money over more than one savings account to ensure you’re covered by the limit.

Saving for children and grandchildren

One of the best ways to save for your children or grandchildren is to open a Junior ISA, which will allow you to save up to £9,000 a year tax-free for them. Alternatively, you could choose to invest in premium bonds, which you can sign over to the child when they turn 16, or you could open a children’s savings account.

Another type of savings account to consider is a fixed rate bond. Fixed rate bond savings accounts might be right for you if you have a lump sum to deposit that you won’t need to access for several years. This type of account might be ideal if you’re saving for your children’s or grandchildren’s education or perhaps a deposit on a house.

Can I take my money out of a savings account whenever I want?

When you can withdraw money from your savings account depends on the type of account you have. 

As the name suggests, easy access accounts allow you to take money out of your account whenever you want. Some do limit the number of withdrawals you can make in a year though, so it’s important to read the terms and conditions before you sign up.

Notice accounts also allow you access to your cash, but unlike easy access accounts, you can’t take money out whenever you want (at least not without incurring a penalty). Instead, you’ll need to tell the bank that you want to make a withdrawal and then wait for the notice period to pass. Notice periods can vary between 30 days and 90 days, depending on the account.

Fixed rate bonds don’t allow you to take money out of your account. They require you to make a full lump sum deposit when you open the account, which you won’t be able to access until the bond matures. If you want the flexibility to withdraw your money, this probably isn’t the right type of account for you.

Open a savings account with Raisin UK

To quickly and easily open savings accounts with competitive interest rates, register for a Raisin UK Account today. It’s free to open a savings account through our marketplace and once your application has been approved, you just need to make your deposit and watch your savings grow.

For more information on how to open a savings account with Raisin UK, read our quick start guide or contact a member of our UK-based customer services team.

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