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Saving Money

Page 14: Financial: Savings Accounts.

Please read on.

Cash Deposit Savings.

This is the page devoted to the various types of deposit account that you may find in a bank or building society on the high street. As promised, here is our properly expanded, Surgical guide to savings accounts.


As with bank accounts, there are legal requirements regarding identification, to counteract illegal activities related to terrorism and money laundering, etc. This means that anyone opening a savings account with a banks and building society that they don't already have an account with, must produce at least two documents to prove that they are who they say they are. This is usually a document identifying the person, like a passport or driving license, and another one, maybe two, confirming address, like a utility bill or credit card bill. There may also be rules regarding minimum age: Mini-Cash ISAs can't be opened by persons under 16, for example. Accounts may not usually be opened by non-UK residents.

Opening and Operating Medium

Most savings accounts in the UK are opened and operated through a branch of the bank or building society, using the passbook as an account identifier/register of deposits or withdrawals. This gives the account holder access to an immediate face-to-face response should there be a problem or query regarding the account, and provide both the bank and the account holder with a simplified, easy to understand passbook account identifier.

Accounts can also be opened and operated nationwide, using postal or telephone based accounts. The medium used can apply in combination, depending on the particular account. These distance accounts allow the bank or building society to make staff and property savings, which can be passed on to customers in the form of higher interest rates, which we'll discuss in more detail later, if you're still interested. Good postal accounts come with a passbook and a pack of freepost, pre-addressed envelopes, with the promise of next day turnaround for cheque deposits of withdrawals. Telephone accounts, which are often postal as well, provide the link for queries and problem solving traditionally handled by the branch. Bear in mind that although many of these distance accounts are designated as Instant Access, there will inevitably be a day or two delay in accessing your money, regardless of the bank's best efforts. Bear in mind the cost of telephone charges, when deciding upon an operating medium.

Internet-based savings accounts offer the best interest rate returns for savers and the extra convenience of 24-hour money transfer/deposit/withdrawal with online account query handling. The Internet is used here as a third means of distance opening/operation, after postal and telephone, so there will be the inevitable delays in accessing your cash, via a cheque. Remember that cash will never be sent by the bank or building society and should never be sent by the account holder, so there is always extra time delay for cheque clearance and for the interest to start accruing on deposits, and for cashing-in your withdrawals. There are security risks associated with Internet operation, and Internet access and computers are never completely free, neither do we all possess the knowledge and confidence to use the Internet regularly.


First of all, there are three tax regimes with savings accounts. Most savings accounts pay interest after a deduction for tax. The rate of taxation is 20% for basic rate taxpayers or 40% for higher rate taxpayers. If you pay no tax, you can apply to have the interest tax free, but the default set up is for the interest to be taxed. That way, the deduction is made automatically by the bank or building society, so there need not be any other forms to complete to admit to any tax liability.

The Individual Savings Account, or ISA, is a special tax-free savings account. All interest is tax-free in an ISA. See our Understanding ISAs page for more information.


Savings accounts have rules regarding how easily the account holder can access their cash. If they are prepared to lock away your cash for a certain number of days, you are likely to be rewarded by the bank or building society with a little more interest than the instant access variant. Typical notice periods are 30-days, 60-days or 90-days. If you insist on accessing all or part of your savings then and there, you may be allowed to do so, with the penalty of loss of interest equivalent to the access period. Bonds are accounts that are essentially slightly more extreme versions of the Notice accounts, in that typically, they allow one lump sum investment, one account per customer, with absolutely no withdrawals or closure over the term, and longer terms such as 1, 3 or 5 years. Bonds can offer very good interest rates but rates are often fixedfor the term at the outset, so the investor is gambling with the value of the investment: If interest rates fall over the term, the interest rate will look more competitive, and vice versa.


The regularity, or frequency, of investment can vary from the single deposit in a bond, to ad hoc lump sum investments as and when the account holder can afford to, which is the more usual set-up, to automated standing order or direct debit payments into Regular Saver accounts. While Mini-Cash ISAs are the team leaders of deposit savings account types, surely Regular Saver accounts are the unsung heroes? Offering interest rates that exceed any other account type, even surpassing Mini-Cash ISAs, they can allow small, typically £10 or £20, monthly payments that can accrue unnoticably and easily. Unfortunately, the interest is liable to taxation, so may not be targetted by a higher-rate taxpayer.


Don't forget that building societies offer the best interest rates, and if you are a member of a building society, in other words, an account holder, you will probably receive a windfall of at least a few hundred pounds if the society converts to a bank or is taken over. These days, that event may be less likely, but it nevertheless does and will happen again to a building society near you. You just don't want to be saying "I was going to open an account there a few years ago", while you read about the £1,500 windfall that each member is getting. There are also some absolutely awful savings accounts out there served up by our biggest banks.

Reasons for saving

Read the small print, shop around and get the best deal for your personal circumstances. Many people save for an emergency fund - many advisers say that a good target is a fund that covers three month's wages. Alternatively, people save for a specific thing, like a holiday, a car, a home. Saving from scratch as an investment strategy often includes safe, high street deposit accounts. The emergency fund in an instant access account at a local branch is often picked-out by advisers as the first base for investment, followed maybe by that Mini-Cash ISA. Next, do you spread your cash about at mutual building societies or go for the best rates in Notice accounts or bonds? When should you stop having cash savings and start looking at other investments and diversifying and looking at a portfolio? Who is the account for? If it's for a child, look at children's accounts offered by banks and building societies. They can only be opened by, and on behalf of, children under 16, in most cases. And don't forget CTF's, of course.

Please read on.

Savings Rate Slide Indicates Impending Base Rate Cut

(21:30 Friday 15th July 2005 news story)

A whole tranch of market leading savings account rates have fallen away lately, which usually means that the Bank of England are going to cut their rates next month. Banks and building societies don't hang around these days for the Bank to announce their decision in the first Thursday of each month. They can read the daily reports relating to the economy as well as the Bank and need no excuse to avoid making a loss an an account that's paying too much interest.

If you're thinking of putting a few pounds aside in a bond with a good interest rate, remember that it may have an increasingly limited shelf life. Borrowing rates may be similarly affected and, conversely, consider carefully any fixed-rate mortgage deals that may work out slightly more expensive after August.

All of this is pure conjecture, of course, no-one has a crystal ball for interest rate movess, but the signs, and financial press predictions, mostly point downwards.

A Hal of a Rate

(21:30 Wednesday 8th June 2005 news story)

Halifax will break the 10 percent barrier on Monday, when it will unveil its 10% Childrens Regular Savings account. We think that this rate is a stormer, surpassing HSBC's way-too-restrictive-to-be-useful 8% regular saver. There are restrictions but there are also some really nice terms and conditions too, and you don't have to sign up for a rubbish current account to qualify, can you hear us Hong Kong and Shanghai?

Quick low-down: The cons are that the rate is fixed for the first year only, so be quick; withdrawals or missing a month's payment will mean closure; maximum £100 per month; children must be under 16. Take a breather. The pros include, more than one adult can save for the child, like parents, grandparents, uncles, aunties; the amount paid each month can vary; the interest is TAX FREE; minimum £10 a month.

It's a good one. 10 out of 10 percent, for effort, marketing, innovation, interest... Halifax.

Pondering Leeds' Big Rate

(Tuesday 1st March 2005 news story)

Leeds and Holbeck Building Society have notified members of an account that is offering 6.0% before tax. The account, called a Loyalty Savings Account for Members is, as the name suggests, restricted to members of the building society only. It has a low opening balance of £100 and a maximum balance of £5,000. The downside is that there is a 60 day notice for access to the cash, or 60 days loss of interest, and after 31.12.05, instant withdrawal will result in closure; the rate includes a 1.50% bonus until 31.12.05. The account is operated via branch or post. If you're a member it beats your piggy bank if you've paid off your debts and have paid-in your full ISA allowance.

Whilst there are significant restrictions on accessing your money and the rate includes a hefty bonus and only society members are eligible, the rate is exceptionally high. We've installed it as the Money Surgery Rate of the Month for March, and added it to our Latest Rates Page.

Compare this account with a recent headline grabbing offering from HSBC, that offers 8.0% gross for regular monthly saving, compared with the next best at 7.0%, BUT you have to move your current account to them in order to qualify, and their current account offers poor credit-balance interest and uncompetitive bank charges, in other words, not worth it.

There is an alternative to banks, by the way. They are called Building Societies. Stick with these guys for current accounts, overdrafts, cash savings, mortgages, credit cards, personal loans, and avoid anything with "bank" after the name apart from the occasional piggy bank. And bottle banks, of-course. Oh, and riverbanks can be handy.

Building Themselves Up

(Tuesday 1st September 2004 news story)

Building societies last year enjoyed their strongest growth for nearly a decade, regaining some of the ground lost after the demutualisation/carpetbagging wave of the last decade, with many regional societies beginning to flourish once again.

The total assets of building societies grew by 14.6% in 2003-4, crossing the £200bn mark for the first time, according to a report by KPMG. Leading the way was the Kent Reliance Building Society, which increased its assets by 37% to £838m. Other societies which have expanded rapidly include the Swansea, up 25%, Dudley, up 21%, Newcastle, up 19%, and Manchester, up 18%. The Nationwide, which resisted carpetbagging attempts to end its mutual status, remains by far the biggest society. It makes up 45% of the sector and grew by nearly 19% in 2003-4.

Since the demutualisation of Halifax, Woolwich, C&G, Northern Rock, Alliance & Leicester , Birmingham Midshires and Bradford & Bingley, the sector was looking a little battered. Building Societies, however, continue to offer better rates, lower charges and a potential demutualisation windfall, however likely that event may be.

Halifax's New 6% Savings Account

(Friday 20th February 2004 news story)

The Halifax has announced the launch of a new savings account that pays a whopping 6% (6.05% AER). It will be available from 1st March 2004 and is a monthly saver type account.

Apparently, nearly 19 million of us have no savings at all and, of those who do save, only about half do so regularly. According to research carried out by the Halifax, nearly half of those who don't save said they'd make more of an effort to do so on a regular basis if they could find an account that paid a good rate of interest and which only required a small monthly deposit (£25 was the example quoted). In response, Halifax has created this exceptional new account.

You have to commit to saving for one full year and your monthly deposit must be at least £25 up to a maximum of £250. The rate is fixed for 12 months and is open to anyone over 16. At the end of the year, the account will be automatically switched to one of three instant access accounts chosen by the customer at the start. The account is limited to one account per customer per year and if it's closed early the rate will be reduced to the rate of the Halifax Web Saver account which currently pays 4.3%, which in itself is competitive.

At Money Surgery, the Greatest Debt Busting Machine on Earth, we have always championed Monthly Saver account types. Take a look at our "Rate of the Month" on our Home Page. They offer market leading rates, and the account holder trickle feeds their often modest deposits, so the payments are not hard to bear. What we must all do, and we urge all Patients and readers to try and do, is to open one of these accounts, once your debts are finally paid off, of-course. If there is a low take up of these top rate accounts, Halifax's competitors will not bother to try and compete. Let's show the financial world that savers are not going to accept low savings rates. Let's endorse Halifax's new account and at the same time count the interest.

Nationwide First to Raise Savings Rates

(Friday 7th November 2003 news story)

Nationwide has become the first provider to pass on the benefits for customers. All savings rates will rise by at least 0.25%, while rates on its instant Cash Isa and the e-savings account will rise by at least 0.5%, to 4% from 1 December.

It is noble deeds such as this that we feel should be rewarded and publicised in some way. So we've decided to give an inaugural Gold Scalpel award to say well done and thanks Nationwide.

Rates Rise by 0.25%

(Thursday 6th November 2003 news story)

As widely predicted, the Bank of England have announced at noon today that they have raised their Base Rate by 0.25% to 3.75%. This will have an impact over the next few days on both borrowers and savers as banks and building societies review their interest rates.

The text that accompanied the Bank of England's announcement said a "modest increase" was required to help it meet its inflation rate targets. This suggests that it sees this rise as fine tuning rather than the first of several increases, however the background of rosy economic data and spiralling personal debt must have forced their hand.

This is the first increase in the Base Rate for nearly four years, so this increase is going to come as a bit of a shock to borrowers who have become used to low mortgage rates, low-cost personal loans and low-rate credit cards. The environment is shifting towards a higher-rate future and whilst borrowing remains extremely cheap, borrowers and lenders may well change their attitude and behaviour regarding debt. At the surgery, we expect the Bank of England to be eager to monitor the impact on economic and personal debt statistics of the rate rise, not just on inflation.

ISA Deadline Next Saturday

(Sunday 13th April 2003 news story)

The best savings account is the one that offers immediate access and the best interest rate. Since their introduction in 1999, the Mini-Cash ISA account type has consistently provided the market-leading interest rates on our Best Interest Rate page. If you have money to save and your debts are taken care of, look at opening a Mini-Cash ISA in the first instance but check the terms and conditions of each account so that your happy with the rules for access to your cash. Check out our How to Understand ISAs Page for all the details.

For those of us who have opened a Mini-Cash ISA this tax year, don't forget to use up all of your £3,000 allowance before 5th April, next Saturday, the end of the current tax year, and coincidentally the night of our MoneyOscar Awards. Rates may have gone down alarmingly over the last year on Cash ISAs but remember, they're still the best "safe" High Street investment for the foreseeable future.

Saving for Tomorrow

(Sunday 19th January 2003 news story)

There has been very little good news to read about personal finance for the last few years. Even here at Money Surgery, the nature of most of our articles has been of warnings, poor standards or worrying economic figures. Many articles in the press recently have mentioned the "£27 billion pensions gap" figure, which allegedly represents the difference between what we are saving and what we need to save for a comfortable retirement.

There is evidence that we're saving less than we used to as a recent survey, "British Savings Report 2" from Royal London, confirms that we've got worse since its first report in May of last year. According to the report, regular savings (including pensions, deposit-based savings, ISAs and other regular-premium investments) have fallen by a massive 40% over the last six months. Apparently, the average monthly savings amount has dropped to £203 a month from £358. Worryingly, 46% of the population don't save regularly, up from 44% in the last survey.

So what happened to the feel-good factor inspired by rocketing house prices? According to the survey, 46% of respondents feel pessimistic about the current economic climate. Has the stock market decline dampened our optimism or are we all nervous about the military build-up on Iraq's borders and the threat of terrorism? We don't think so here at Money Surgery. Consumer spending is still strong and mortgage debt and consumer credit figures keep hitting record highs every month, fuelled by low rates. Why save at 2 percent when you can borrow at 0 percent?

If you are worried about your level of debt or about saving for your future, today is always a good day to take a long hard look at your finances and make some changes. But before you increase your monthly saving, battle the debts first. Cut your bills by shopping around for mortgages, personal loans, credit cards, utility bills, home and motor insurance. Pay off your debts, starting with the highest interest rate and working downwards. Transfer card balances to a 0% or low-interest card to give yourself time. If you're not confident about financial matters and are wary of seeking "professional" advice, speak to a close friend or relative who seems most switched on about money or look at the financial press, like The Times Money section every Saturday, or financial web sites, like Motley Fool. See our Links section for the best Internet links.

Money Surgery is packed with ideas that can help you make the difference. Only once you've got your spending under control, slashed your bills and saved up some cash for emergencies, will you be ready to think about investing for your future, such as starting a pension.

Tax-Free Savings Rates Chopped on the Quiet

(Thursday 16th January 2003 news story)

Savers expecting their tax-free savings rates to mirror Bank of England rates have been let down by banks and building societies, according to a new report by Chase de Vere. While no-one was looking, 71 percent of banks and building societies have lowered rates on Mini Cash ISAs by more than the last Bank of England base rate cut of 0.5% since it was made in November 2001. 68 percent of TOISA providers also lowered account interest rates by more than the 0.5% over that period.

Tax-free savings account providers have not been playing fair say Chase de Vere. "Prior to the last base rate cut, providers offered rates equal to it or more", says Anna Bowes of the financial adviser firm. "It is outrageous that banks and building societies have now cut rates by more than 0.5%" she added.

To add insult to injury, most banks and building societies comply with the bare minimum required by the Banking Code when lowering rates, in that they advertise the change via branch notices or newspaper ads.

But savers are going to get some protection: From 1st March 2003, the revised Code compels account providers to inform account holders individually should the interest rate on their account fall by more than 0.5% relative to the Bank of England base rate in any 12 month period and give savers the option of transfer or withdrawal without penalty.

At the Surgery, we advocate a continual monitoring of savings account rates so that savings can be moved to accounts offering the best rates. However, account providers can only maintain good rates for a short time, so be prepared for the next move.

Check the Latest Rates.

Savings Rates Sink Into the Sunset

(Thursday 29th August 2002 news story)

Money Surgery is constantly monitoring savings and borrowing rates for our patients, providing, free of charge and advertising, up-to-the-second best-rate information. What we have been seeing of late is a further erosion of the percentages offered on savings rates offered by banks and building societies. The Bank of England, bless them, have maintained the base lending rate at a nice level 4% since November 2001, so what gives the banks and building societies the reason for cutting rates?

According to a letter sent to a patient of the Surgery by Nationwide Building Society, their rates were cut by up to 0.25% because "savings rates have reduced across the market in recent months". At least they had the decency to notify customers. Others deserving naming and shaming include Abbey National, Halifax, Barclays, Intelligent Finance, Northern Rock, Chelsea and Yorkshire Building Society. Underlying reasons might include the extra deposit money coming in from people afraid of shares, or an anticipation of longer term low rates or even a Bank of England base rate cut. Savers with Internet or telephone based accounts with IF have seen their rates tumble by over 1% since last November. Savers can be caught out by companies offerring variable rate accounts that look great but over time become uncompetitive.

We show you the best rates at any given time but remember, patients, that rates can and do change for the worse very often. Ensure that you are able to access your money from a particular account or that you at least know what the access rules are before investing. That way, you can swap to an account with a better rate if required later.

Check the Latest Rates.

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Saving Money: Switched on ways to keep hold of your precious cash.
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How a house, open a bank account...
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