Limited access savings accounts often give you better interest rates than instant access accounts but, as the name implies, they come with limited access to your funds. You may only be able to withdraw funds on a few occasions before you lose out on a bonus interest rate deal, for example. In some circumstances, you might not be able to make any withdrawals for a specified term. If you don't need to withdraw money from your savings frequently, this type of bank account can be a good way to boost your savings.
In this article we explain how a limited access savings account works to help you decide whether it's right for your savings needs.
How does a limited access savings account work?
Limited access savings accounts are a flexible way to earn interest on your savings. You can put in a lump sum at the start of the term and earn interest on your money that way. Or, you can open the account with a minimal sum and make deposits along the way building your savings in the process. However, there are usually limitations on the number of withdrawals you can make during the term. If there isn't a specified term, restrictions usually apply over a 12-month period. Some limitations can include:
- A limited number of withdrawals within a specific term
- Lower rate of interest during months when withdrawals are made
- Lower interest rates if the withdrawal limit is surpassed
Limited access savings accounts typically give you access to your money whenever you want. Withdrawing money can come with penalties. For example, many limited access savings accounts lower your interest rate in months when you've made withdrawals. Making a single withdrawal can mean losing out on a lucrative rate for the whole month. However, the rate automatically reverts to a higher interest rate the following month which you get to keep as long as you don't make any withdrawals that month.
Other limited access savings accounts might allow a set number of withdrawals every year, for example up to six. If you need to make more than six withdrawals, you still can. However, you will usually lose out on the higher interest rate as a result.
Many limited access savings accounts come with a variable interest rate, rather than a fixed interest rate. This means the interest you earn can go up or down every month. Variable interest rates work well when interest rates are on the rise, but can mean earning less interest if they fall.
A few limited access savings accounts have further limitations. Some may not allow any withdrawals at all during a specific period, while others may require notice periods before you can access your money.
What is the difference between a regular savings account and a limited access savings account?
When you're choosing between a limited access account vs regular savings accounts, you may want to think about your saving goals and habits. The right choice for you will depend on your individual circumstances. But in general:
- Regular savings accounts are great for building up your savings over time while creating a savings habit -They come with higher interest rates but lower maximum deposits and overall balances.
- Limited access accounts may work better if you have a large lump sum and want to access your funds easily - You can still access your money instantly and make a limited number of withdrawals while benefiting from higher interest rates.
Regular savings accounts and limited access savings accounts are similar in that they both limit access to your money. There are typically withdrawal restrictions with both types of accounts. A regular savings account, however, requires you to save a minimum amount each month for a specific period of time in order to earn interest at the end of the term.
Limited access savings accounts won't necessarily have minimum monthly deposit requirements. Also, limited access savings accounts typically have higher deposit limits than regular savers where there are usually maximum monthly deposits.
Many regular savings accounts only allow you to save a few hundred pounds a month. On the other hand, with limited access savings accounts, you can, with some providers, hold several million pounds in each account and earn interest on that money. Keep in mind that the Financial Services Compensation Scheme (FSCS) only provides financial protection up to £85,000 per person (£170,000 for joint account accounts) should the institution fail. We explain more about this later in our article.
It's worth keeping in mind that if you earn too much interest, you may need to pay tax on the interest. The personal savings allowance is currently £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. If you're an additional rate tax payer, you don't get a personal savings allowance. You can find out more about the personal savings allowance in our article 'What is the personal savings allowance (and how to boost it by £5,000)'.
How to open a limited access savings account
Opening a limited access savings account can be done online, in branch, over the phone, or via a banking app depending on the provider. You'll need to meet certain eligibility criteria too, but these are usually less prohibitive than what is required for other types of accounts. For instance, you won't necessarily need an existing current account with the bank to open a limited access saver.
The exact requirements to open the account will vary depending on the provider you choose, but usually include:
- Being a UK resident
- Being at least 16 years old
Minimum deposit requirements are typically low. You can usually open an account with £1. These types of accounts also allow larger balances than other savings accounts.
How safe are your savings in a limited access savings account
Limited access savings accounts offered by authorised banks or building societies are protected by the Financial Services Compensation Scheme (FSCS). This protects your deposits up to £85,000 per person, per bank. Be mindful that some banks share a banking licence and so if you were to bank with two banks that share a banking licence, then you would only be protected up to £85,000 for both banks combined. If you hold a joint account, this limit goes up to £170,000. As long as your limited access savings account is FSCS-protected, your funds are safe up to the £85,000 limit.
Which is the best limited access savings account?
The best limited access savings account depends on your needs. Rates can be higher than instant access accounts. They are often variable, which means you can't "lock in" an interest rate. As such, it's worth thinking about other factors as well before deciding which account to choose.
For instance, you may want to look at the withdrawal limits and the penalties associated with the account. Some accounts have more restrictions than others and may not work for you in the long term.
If you want to compare savings accounts, check out our best buy tables. They are regularly updated and offer an overview of the best rates on the market across several different types of savings accounts.
