Building up your savings is an essential step on your financial journey. However, learning how to save can be a tricky process and can even seem overwhelming, especially if you’re just getting started.

There is so much advice to listen to, so many types of accounts to explore, and so many different ways to save that people may be tempted to keep their money in whatever savings account they have already, without trying to maximise their returns.

At Sheffield Mutual, we aim to empower people to discover the ideal savings strategy that suits their lifestyle.

To make this a bit easier, we’ve created a list of five of the most common types of savings accounts to help explain what they are, how they work, and what they are best at doing. 

What Are The Different Types of Savings Accounts?

ISA/LISA/JISA

ISAs, or Individual Savings Accounts, are often considered among the best savings accounts available in the UK. Anyone can open an ISA as long as they are a UK resident aged 18 or over.  

Every tax year, an annual limit is set on the amount of money that can be saved in an ISA. As long as your contributions remain below this limit, any gains or savings are not usually subject to tax.

At Sheffield Mutual, we offer a variety of Stocks and Shares Individual Savings Accounts (ISA) products, including our Regular Premium Investment ISA, Single Premium Investment ISA, Regular Premium Sustainable ISA and Single Premium Sustainable ISA. 

Junior ISA

A JISA is designed to help family members start saving on behalf of children.

The JISA was introduced in 2012 to replace the Child Trust Fund, which the government previously offered. The current annual limit for a Junior ISA is £9,000. It provides the same benefits as a standard ISA, with the additional benefits of allowing accounts to be opened on behalf of people below the age of 18.  A JISA allows contributions from family members, which makes it a great choice if a child has aunts, uncles, grandparents or any other adults who would like to contribute to their savings.

Lifetime ISA

A Lifetime ISA or LISA is a type of ISA that comes with significant benefits, but strict limitations on how it can be used.

Currently, any amount that you save in a LISA up to £4,000 will be topped up with an additional 25% by the government, which means that by saving £4,000 annually, you will have £5,000 at the end of the tax year. This 25% addition is extremely attractive, making a LISA a popular choice for many people.

However, there are limits to how the money in a LISA can be used. 

Funds can only be withdrawn from a LISA for a first-time home purchase (which is not a rental or investment property) or after the age of 60 as part of your retirement.

The 25% bonus combined with the withdrawal limits makes the LISA an excellent choice for long-term financial planning, but a less attractive option if you might need to access the money in the near future.

In addition, any withdrawal from the LISA without a house purchase or before the age of 60 incurs an automatic penalty amounting to 25% of the withdrawn funds, preventing people from benefiting from the bonus and then withdrawing immediately.

Easy-Access Savings Accounts

An easy-access savings account is one of the most common and straightforward types of savings accounts that you are likely to encounter.

Put simply, an easy-access saver aims to offer a slightly higher interest rate than most current accounts, while also allowing customers to access their funds immediately if needed.

In exchange for instant access, you are unlikely to get a high interest rate, so an easy-access savings account may not be the best option for medium or long-term investing. 

However, easy-access savings accounts are an excellent choice for your emergency fund or rainy-day fund, as they make it easy to save your money in a separate account, often offer slightly higher interest rates than a current account, and allow you to access funds in case of an emergency.

Fixed-Term Savings Accounts

A fixed-term savings account typically offers a higher-than-average interest rate during the fixed term specified when the account is opened. However, this higher rate of interest is provided with the understanding that you will not be able to access your savings during the fixed term.

In most cases, you cannot add more money to a fixed-term savings account after your initial deposit. Instead, you will be offered an interest rate, a savings period, and a set value that you can save.

One alternative to the fixed-term savings account is a fixed bond, like Sheffield Mutual’s Three Year Fixed Bond. Like a fixed-term savings account, a fixed bond allows you to deposit a cash lump sum, ranging from £1,000 to £200,000, for a set period of time, in this case three years.

During this period, you will receive a fixed interest rate of 4.1% AER, compounded over the three years. This means that, if you invested £10,000 in a fixed bond with Sheffield Mutual, you would receive £11,281.12 at the end of your three year investment period.

Fixed-term savings accounts and fixed bonds are both great options if you have already established an emergency fund and you have an additional lump sum of savings that won’t be required for the next few years.

If you have a specific goal that you're saving towards, such as a once-in-a-lifetime trip, choosing a fixed savings account or bond can be a good way to earn extra interest while avoiding unnecessary temptation to dip into your funds.

Please Note: The fixed interest rate on our Three Year Fixed Bond is subject to change, please check the interest rate before investing in a bond. This product can be removed from sale at any time.

You will not be able to access your capital during the investment period unless you have been diagnosed with a terminal illness or pass away before the bond matures. If you pass away or are diagnosed with a terminal illness, you will receive less money out than the amount guaranteed at maturity. 

Tax treatment depends on individual circumstances and may be subject to change in the future.

Notice Accounts

Notice accounts are an attempt to strike a balance between easy-access and fixed-term savings accounts. They will generally provide an interest rate somewhere in the middle of the two, although it’s always important to shop around to get the best rates.

While a notice account doesn’t stop you from withdrawing for a specific length of time like a fixed-term account, you also cannot access your money instantly like an easy-access saver.

Instead, when your notice account is set up, you agree to provide your bank with a set notice period before withdrawing your money.

A notice account could be a good choice if you know you will need access to your money at some point in the future, but you will have some time before you require access. A deposit on a house is a good example, as you could enter an offer and give notice that you will need to withdraw funds in advance of exchanging. 

Regular Savings Accounts

A regular savings account can be a great way to save small amounts frequently while receiving a higher interest rate.

However, regular savings accounts often come with restrictions that can catch people out.

As the name suggests, a regular savings account requires regular monthly deposits, often with a minimum required value, and comes with restrictions on withdrawals and an interest rate that typically lasts only 12 months.

Additionally, it is common for interest to be calculated monthly but paid annually, which can sometimes lead to confusion.

One alternative to a regular savings account is a Regular Savings Plan.

Similarly to a regular savings account, a regular savings plan requires regular monthly payments, ranging from £5 to £1,000 a month. However, unlike a savings account, you can select the length of time that you participate in a savings plan which ranges from 10-25 years, meaning that a Regular Savings Plan may be more useful as a medium or long-term saving strategy.

With a Regular Savings Plan, you will receive a guaranteed amount (called the ‘sum assured’) at the beginning of your plan, letting you know the minimum amount you will receive. However, it is possible to earn more than this minimum amount, as your plan will earn bonuses, which means that a Regular Savings Plan will provide you with a minimum amount back with potential to earn even more.

Regular savings accounts and Regular Savings Plans are some of the easiest ways to generate a higher rate of interest on a small amount of savings, if you can commit to saving regularly.

Please Note: Capital is at risk. If you surrender the regular savings plan before it matures (the length of time you selected at the beginning of the plan), then you may receive less money out than you invested in. Interim and final bonuses are not guaranteed and may go up or down before being declared.

Start Planning Your Future With Sheffield Mutual

At Sheffield Mutual, we’re always looking for new ways to help our members save and grow their money.

If you have any questions about Sheffield Mutual’s products or are considering opening one of our savings accounts, please get in touch with one of our friendly, helpful team members by calling 01226 741 000 or emailing us at enquiries@sheffieldmutual.com.

This blog provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.