Different banks offer different types of account – some called deposit, and some named savings. Generally the difference is simply in the name.
SAVINGS ACCOUNT: Savings and deposit bank accounts are for lump sum or regular input savers.
The essence of these facilities is saving for the future, or to prepare for some unforeseen event.
You do not normally receive a cheque book or cash card with a regular deposit/savings account, though there is crossover between some other types.
Some current accounts offer incentives by way of increased interest rates on your funds if you keep a good balance.
Whichever one you choose – or are sold – your excess money is on deposit at the bank. In return for this ‘commitment’ to savings, the bank offers you an enhanced rate of interest than is the case with any current account. Interest paid, is variable between the competing banks. Together with that, interest is calculated in different ways, and can fluctuate depending upon your use of the banking system.
We define a savings account as being a one where you can either put a lump sum of money away, or save regularly, or deposit as and when you have spare funds. Regular savings accounts – at banks or a building society – commonly attract better rates of interest than normal cheque-based facilities.
Interest is normally calculated on a monthly basis and added by the bank, either monthly, quarterly, or sometimes annually. The interest rate generally fluctuates according to the general bank rate, or by normal competitive forces within the market. It is possible to get a fixed rate of interest with some of the bigger commercial establishments.
Savings accounts normally provide the option for you to withdraw funds at short notice, but this can vary according to the one you have. It is also possible with online banking in particular, to be able to instantly transfer money out of your savings fund if needed.
Some savings accounts pay a higher rate of interest than others. For instance, you may choose to deposit a certain sum each month, thereby giving you a slightly enhanced rate of interest. The interest rate may change in any given month which you make a withdrawal of your holdings.
Comparatively, they are not fixed term portfolios and it may be possible to withdraw, transfer, or close the account at any time – depending upon the terms and conditions for that particular account. There might be additional penalties written into the terms you agree to.
Standard savings accounts can be linked to various investments, such as ISAs for instance. Interest may be paid either net or gross of income tax, depending upon your own circumstances.
For the purpose of this article, a bank deposit account is where you either deposit a fixed sum for a fixed term, or top up that sum as and when it is convenient.
The fixed term option is the norm and the length of the term varies. It is often for one year or more. The length of the term decides the rate of interest you receive, with a longer term commitment attracting an enhanced rate of interest. The interest rate can be variable or fixed. It is important to ascertain this before entering into agreement.
Your deposited money is effectively locked away for the agreed term, with no access to it for emergency funds, so should only be a home for investment money after your have taken care of your day to day needs and emergency requirements.
Some deposit accounts allow for early closure or withdrawal – with an extra cost to you.
Savings and Deposit Accounts; UK Rules Updated 2017