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Savings Interest Rates Explained

Savings interest rates determine how much interest you’ll earn on the money in your savings account.

AER, or Annual Equivalent Rate, is used to show what you would earn in interest from your savings account over a year.

 

Help with choosing the right savings account for you

What influences savings interest rates to change?

Savings interest rates typically change when the Bank of England base rate changes but there are other factors that could affect when a savings provider changes their interest rates.

Typically, if the base rate increases, then savings interest rates are likely to increase and if the base rate falls, savings interest rates are likely to fall.

The current Bank of England base rate is 5.25%, effective from 3 August 2023.

How do I choose the best savings account for me?

There are a few things to consider when you compare savings accounts or when reviewing your existing savings accounts:

• Are you looking for an easy access account or could you lock your money away for a set period in a fixed rate savings account?

• Do you want tax free savings?

• Do you want to manage your savings over the phone, in person, or have the convenience of managing it online?

Fixed Term or Instant Access?

Locking your money away for a fixed period will typically earn you a better interest rate than having instant access to your savings. The longer you’re willing to put your money away for, the better the interest rate is likely to be.

It's important to remember that with fixed term accounts you might not be able to withdraw your money without penalties until the fixed term ends.

You might want to consider a fixed rate account for lump sum deposits, but if you want to add to your savings on a regular basis or think you’ll need to withdraw some of your savings, then a cash ISA or an instant access savings account could be more suitable for your needs.

What type of savings accounts does Scottish Building Society offer?

We offer a range of savings accounts including easy access accounts, tax-free and fixed rate savings accounts where access to your savings is not available during the fixed term.

We understand that everyone has different needs when it comes to managing their savings, so most of our accounts give you the option of opening and managing online, or face to face in our Relationship Centres if you prefer.

Fixed Rate Accounts

  • Our Fixed Rate ISAs give you tax-free savings and a fixed interest rate for the term of the account.

  • Our Fixed Rate Bonds also offer a fixed interest rate for the term of the account and the longer you save, the better the interest rate will be.

  • Fixed rate savings accounts mean that the rate will not change at all for as long as you have the account, regardless of what happens with the base rate. Remember - this means that even if the Bank of England base rate goes up, your interest rate will stay the same.

Instant Access Accounts

  • We also offer instant access accounts with our Online Saver and Instant Access Saver as well as our Cash ISA which gives you tax-free interest

With ISAs, it's important to know that there's a limit on how much you can put into your ISA or ISAs in any tax year (from 6 April – 5 April). The ISA allowance for 2023/24 is set at £20,000.

You can find all our savings accounts here

What is a Personal Savings Allowance?

From 6 April 2016, if you’re a basic rate taxpayer you're allowed to earn up to £1,000 in savings income tax free. Higher rate taxpayers will be able to earn up to £500. This is called the Personal Savings Allowance.

Any interest you earn over these amounts will be subject to tax, unless the account is an ISA.

What are bonus rates and does Scottish Building Society offer them?

Some providers will offer bonus interest rates to encourage new customers to open savings accounts, but this means in time, usually 6 or 12 months, the rate on the account will drop significantly when the bonus rates ends.

We don’t offer bonus rates on our accounts as we believe the best rates should be offered to our loyal Members.

How is interest paid on my account?

Interest is paid annually on all our accounts. You can choose to have the interest added to your account with us, or we can pay it to a designated bank account in your name.

Compound interest means you get interest on your savings balance, plus you earn interest on your interest helping your savings to grow faster.

What does Gross interest and AER interest mean?

Gross interest is the amount of interest you earn before income tax is deducted.

AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if paid and compounded once each year.

Financial Services Compensation Scheme

The deposits in your Fixed Rate E-ISA are protected by the Financial Services Compensation Scheme, the UK’s deposit guarantee scheme.

If your bank or building society fails and can’t pay back your money, FSCS can automatically pay you compensation:

  • up to £85,000 per eligible person, per bank, building society or credit union.

  • up to £170,000 for joint accounts.

Find out more by visiting fscs.org.uk