But savers should double-check the small print before nibbling away at their nest egg. Some banks and building societies impose hefty penalties for withdrawals, including charges and loss of interest.
Which? finds out how much you could stand to lose by withdrawing savings early and reveals the providers most likely to sting you.
What penalties could I face to access my savings?
If you choose the wrong one for your personal circumstances, you could end up paying extra just for the privilege of withdrawing your money, lose interest, or be denied access to your cash altogether for a period of time.So what type of accounts impose the biggest forfeits?Instant access accounts
Instant access accounts are popular with savers who want to withdraw money quickly and easily. But it's a mistake to assume that extra freedom is always consequence-free. Some providers also limit the number of withdrawals you can make or the balance you must maintain each year without losing interest.
Which? examined Moneyfacts data to see how many market-leading instant-access accounts impose penalties on savers for withdrawals. Out of the top 10 accounts with the highest interest rates, we found six limited the number of withdrawals you can make or the balance you must maintain before imposing penalties.
The instant access deals from Chorley Building Society and Principality Building Society allowed the fewest penalty-free withdrawals at just two opportunities to access your pot.
But a limit on the number of withdrawals isn't the only caveat to watch out for. Leeds Building Society offers a competitive 4.2% but if your balance drops below the minimum opening deposit of £1,000, the interest rate drops dramatically to 0.05% AER.
Cash IsasMost Isa accounts will allow you to take money out whenever you want without affecting the tax benefits. You can save up to £20,000 in an Isa, tax-free in 2023-24. But some accounts do have penalties or fees for accessing your cash.For instance, Coventry Building Society offers the best rate for an instant access Isa with 4.1% AER. But its Limited Access account, like its non-Isa equivalent, only allows six withdrawals a year, after which you incur a 50-day loss of interest.
The penalty on unauthorised withdrawal charges for a Lifetime Isa (Lisa), is much higher at 25%. It means if someone with £5,000 in a Lifetime Isa needs to access the money before age 60 or for a purchase other than their first property, they will pay a penalty of £1,250.HMRC's latest Annual Savings statistics show unauthorised withdrawals from a Lisa rose by 56% in 2022-23 to 74,650, up from 47,850 in 2021-22. This amounted to a huge £47.2m hit to savers that needed to access their money.Find out more: Fixed-rate bondsThe clue is in the name here. These savings accounts offer a fixed interest rate on your cash for a set period of time, but while they often come with the highest interest rates, opening one will mean giving up access to your money during the term of the bond. The rules around fixed-term account withdrawals and closures vary. Some providers simply won’t allow it, others only allow you to break the contract in exceptional circumstances. If you do close or withdraw money early, then you're likely to face a charge or other penalty such as loss of interest - typically between 90 and 365 days.Halifax's top five-year fixed-rate Isa paying 3.6% AER, for example, imposes a penalty of 365 days' interest. Barclays, meanwhile, currently offers a range of flexible fixed-rate accounts that allow you to make three withdrawals for up to 10% of the balance (at the time of withdrawal) or close the account and incur a 180-day loss of interest.Notice accountsUnlike instant access accounts, notice savings require customers to give advance warning of when they want to make a withdrawal. Some, for example, ask for 30, 60 or 90 days' notice. If you do make an emergency withdrawal from a notice savings account, you're likely to lose some interest. Regular saver accountsRegular saver accounts tend to offer higher interest rates and can be great for those who don't have much cash saved already but want to build up their savings while getting a decent return on their money. Some, like Skipton Building Society's Member Regular Saver, paying 7.5% AER, do allow early closure. Others impose a penalty for doing so. If you close HSBC's 5% AER Regular Saver before the 12 months is up, for instance, then the interest you receive up to the date of closure will drop to the bank's Flexible Saver rate of 1.75%.TSB's Monthly Saver Account, on the other hand, allows unlimited withdrawals but won't let you replace the funds. It offers a rate of 5% AER.
How to choose the right savings account for you
When deciding which type of savings account to open, ask yourself two things: how likely are you to need access to your money, and how long are you prepared to lock it away?
It might suit your circumstances to have one type of account or a variety with different terms and access.
Just always check the small print before opening an account to see what sort of hit you might have to take if your situation changes and you need urgent access to your money.
Find out more:source https://www.which.co.uk/news/article/savings-account-withdrawals-boom-will-you-face-a-penalty-to-access-your-money-a0wxV9z7kfPv