UK Savings Account Terminology

UK Savings Account Terminology Explained Simply

If you’ve ever bought a car, or even a new laptop, you’ll know that finding the right one can have a lot to do with understanding the terminology. Savings accounts in the UK are no different. 

Don’t worry, you need not memorise every bit of savings account terminology in order to get a good deal, but as we’ve always said at NuWealth, knowledge is power. Here’s a quick glossary of savings account terminology we think you’ll find helpful.

AER

AER is the interest rate most commonly used to make comparisons between savings accounts, because it allows you to see how much interest you’ll earn over a full year. This calculation also takes into account bonuses, compounding and charges (if applicable). 

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The AER makes it easier to compare savings accounts in the UK by illustrating how much interest you could earn from a savings account if it were open for one year, regardless of the term or type of savings account.

Generally speaking, the higher the AER, the greater the return.

Not sure what compounding is? Read on.

Interest Frequency

It’s common for UK savings accounts to pay interest on an annual basis or a monthly basis, it is rare for savings accounts to pay on a daily basis.

Bank of England Bank Rate

Also known as the ‘Base Rate’, this rate is set by the Bank of England and acts as a guide for other interest rates, such as lending rates set by banks and building societies.

Cash ISA

ISA stands for Individual Savings Account. An ISA is a common way of saving money and sheltering profits from income tax. The usual tax-free ISA allowance in the UK is £20,000 per year. Read more about ISA in our guide.

Compound Interest

This is where interest is added to your total savings balance and your next interest payment is based on the now larger amount. So not only does your savings balance go up, it goes up increasingly quickly.

Fixed Rate

A rate of interest that is fixed for a period of time (e.g. 1 year or 5 years).

Fixed Term

A period of time that money is saved for which is agreed on opening the account.

Gross Interest

Gross interest means that no tax will be automatically deducted from interest on your behalf. Depending on your personal circumstances, you may need to pay tax on the interest you earn and it will be your responsibility to pay any tax you may owe to HM Revenue and Customs (HMRC).

Interest Rate

This is the percentage return that you will receive on your savings. There are gross, net and tax-free interest rates, depending on the account that you have.

Tax-free

Tax free means you will not pay income tax on your interest.

Tax-free Allowance

The amount allowed to be invested in a cash ISA account which is free of income tax. In the UK, this is normally £20,000 per financial year.

Variable Rate

A rate of interest that may change over time.

Withdrawal

When instructions are carried out to pay money out of your account (e.g. cash taken out of an account).

Notice Period

Some savings accounts require customers to give notice before withdrawing money. The notice period typically ranges from 30 to 180 days. During this time, the account holder cannot access their funds without incurring a penalty.

Instant Access

Instant access savings accounts allow you to withdraw your money at any time without advance notice. While these accounts offer greater liquidity (i.e. how easily you can access your money), the interest rates may be lower compared to accounts with notice periods.

Financial Services Compensation Scheme (FSCS)

The FSCS is a safety net that protects customers' savings in case a bank or building society fails. It covers up to £85,000 per person, per institution, providing peace of mind for savers.
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Phew! Good job getting through all of that. Remember, we’re here to help, so if you’re still unclear about what a term means, or if you have another question, get in touch with us via the chat icon in the bottom-right of the screen.