Whether you are saving for a rainy day, a holiday or a new car, it is vital to choose the right sort of account.
Otherwise, you could end up missing out on a higher interest rate, or being penalised when you need access to your money.
Our savings guide will help you pick the right account for your needs.
Easy access accounts
With easy access accounts, you can deposit and withdraw money whenever you want.
The interest rates paid are variable, which means they tend to – but do not always – move in line with the Bank of England base rate (currently at 0.5%).
Common catches with easy access accounts include introductory bonuses, most of which last for the first 12 months.
It is also worth looking out for withdrawal restrictions that might, for example, limit you to a certain number of penalty-free withdrawals within a 12-month period, and minimum deposit requirements of say £1,000.
Top tip: Don’t avoid an account with a great rate just because it has an introductory bonus. However, be prepared to move your money elsewhere after the first year if there are better deals available.
Fixed rate bonds
If you are prepared to lock your savings away for a year or two, you may be able to earn a higher rate by opting for a fixed rate bond.
These pay a fixed amount of interest for a set period – generally ranging from six months to five years.
Fixed rate bonds are not, however, suitable if you are likely to need access to your savings during the term, as withdrawals will usually result in penalties and the account being closed.
As you can only generally make one deposit at the outset, they are also unsuitable for anyone planning to build up a nest egg over time.
Regular saver accounts
Opening a regular saver account, which pays a fixed rate of interest for a set term (usually 12 months), can be a fantastic way to get into the habit of saving on a monthly basis.
Most require you to pay a certain amount – of say between £25 and £250 – into the account every month, while any withdrawals will generally be penalised.
However, the interest paid tends to be higher than on either fixed rate or easy access accounts.
Cash ISAs, which can be easy access, fixed rate or regular saver accounts, are a great choice if you have yet to use up your ISA allowance for the current tax year.
This is because interest is paid tax-free, making the returns much higher.
Remember, however, that cash withdrawn from an ISA will still count towards your annual allowance.
If you plan to dip into your savings regularly, it may therefore be worth having an easy access account as well.
Top tip: If you want to transfer money in an ISA to a new account, you must arrange for your new provider to manage this, rather than withdrawing the money yourself. Otherwise, it will lose its tax-free status.