Savings accounts versus current accounts
Learn the key differences between savings accounts and current accounts and the benefits of each.
Key points
- Savings accounts are designed to hold money and earn interest over time.
- Current accounts are used for everyday spending, such as bills, salary and purchases.
- Savings accounts often offer higher interest rates but may limit access.
- Current accounts provide instant access to money, with tools like debit cards and direct debits.
Fluctuating interest rates, terms, and flexible access can make your head spin. Finding the right account for your needs involves thinking about your financial habits and comparing different types of accounts.
What is a savings account and how does it work?
A savings account is where you deposit money and leave it to gain interest. They usually have higher interest rates than current accounts. This is to encourage you to keep your money there. There are a few different types of savings accounts, depending on your goals.
Fixed term account
A fixed term account offers potentially higher interest rates as long as you keep your money where it is for a certain amount of time. Generally, the interest rates will be fixed, meaning they won’t change while you have the account. And you can expect the interest to be added to your account at the end of the fixed term period.
Easy access accounts
Easy access accounts are great if you want to be able to take out money as and when you need it without any penalty. A ‘penalty’ could be something like a reduced interest rate. But these accounts will often have variable interest rates, that can be lower than fixed term or notice accounts. These accounts can have their interest added either monthly or annually.
Notice accounts
If you may need access to your savings but not straight away, a notice account might be a good option. They’ll allow you to take money from the account, but you’ll have to go through a notice period. They work similarly to easy access accounts as the interest is added monthly or annually, they also have variable interest rates.
Individual savings account (ISA)
Cash ISAs are another type of savings account, but the main difference is that you have a limit to how much you can save yearly.
What are the benefits of a savings account?
There are a few reasons you might want to have a savings account:
- Your money works for you – With higher interest rates your money does all the work. So, the more you save, the more interest you get.
- Rainy day fund – Having a savings account means you have money aside for those unexpected moments.
- Financial discipline – Savings accounts are a great way to better your financial habits because you’re separating your spending money from your savings. So, it could help reduce the temptation to spend money you'd really like to save.
- Achievement – If you have a goal for your savings, like buying a house or going on holiday, reaching that goal is a great achievement when you hit it.
Typical fees and charges associated with savings accounts
Savings account fees can usually depend on the style of account you open, and who your provider is. They can look something like this:
- Monthly maintenance fee – Most savings accounts in the UK do not charge a monthly fee. However, some providers only offer specific high-interest savings accounts to customers who hold a specific current account with them, which may carry a monthly fee. There are no fees if you apply for a savings product through Aviva Save.
- Early withdrawal fee – Certain types of accounts, like fixed-term or notice accounts, may charge a fee as a penalty for withdrawing before the end of the term or if you can’t give the required notice.
- Transfer fee – If you decide you want to transfer your funds from one provider to another, your provider may charge a fee, especially if it’s going internationally.
These are the fees you’re most likely to see, but if you’re unsure if your account may have more, you can check with your provider.
What is Aviva Save?
Aviva Save is like a market place for savings accounts. We show you savings accounts from a range of banks and building societies that you’re able to keep an eye on and make changes, all from one place. We'll find the great rates, so you don’t have to, letting you get on with the important stuff. All your accounts are covered by The Financial Services Compensation Scheme (FSCS) meaning you’re protected up to £120,000 per person per banking group.
What is a current account and how does it work?
A current account is for the right now, your daily use. It’s commonly where your salary is paid, and your bills come out. You can use it for your everyday spending (and those little treats you deserve), as well as pay your bills and direct debits. At Aviva, we do not offer current accounts to customers.
What are the benefits of a current account?
Your current account will carry a multitude of benefits such as:
- On-demand access to funds – Being able to go to the ATM or use your debit card means you can instantly get cash out or make purchases when you want.
- Direct debit function – Having the function to pay things by direct debit or standing orders for your regular payments like bills, mortgage payments, and subscriptions lets you forget about due dates as they’ll come out instantly.
- Overdraft options – A lot of current accounts offer overdraft options, giving you a buffer if you need to spend more than your balance.
Typical fees and charges associated with current accounts
Current accounts tend to have some similar fees to savings accounts with a couple of differences:
- Monthly maintenance fee – Most standard current accounts are free to maintain, but some premium accounts may come with a charge. However, a lot of these accounts often come with additional benefits like travel insurance or higher interest rates.
- Overdraft fees – If you have an arranged overdraft and you use it, interest is usually charged if you’re overdrawn by a certain amount. Sometimes you can go into an unarranged overdraft and your bank may charge you a higher rate, which can be charged daily.
- Transaction fees – Using your debit card abroad, or online shopping in a different currency, can result in foreign transaction fees.
Can I have a savings account without having a current account?
There’s no reason why not! You need a way to be able to pay monies into either one of your accounts to keep them open. You may physically go into a bank and pay cash into your savings account, or you may pay by cheque.
Should I have both a savings account and a current account?
That’s entirely up to you, as it depends on your financial goals. If you need constant, instant access and aren’t really bothered by interest rates, then a current account might be for you. But if you want the structure of a savings account and the potential to earn more interest, then that might just be what you need.
If you need help deciding on what kind of account might work best for you, visit your local bank or building society to discuss your options. Alternatively, you can open an Aviva Save account or learn more below.
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