If you’re planning to set some of your cash aside, you’ll need to know the best savings account for lump sum amounts. This article is designed to help you in your research.
It’s important to know at the outset that there isn’t one single answer to this question. There are several types of savings accounts, each with their own features and benefits. If you're planning to save some of your cash rather than invest it, you'll need to understand your saving account options. There are several types, each with their own features and benefits which are described below.
While this article is designed to help you in your research, the information presented should not be considered financial advice. If you have specific questions about your specific circumstances then these should be raised with your financial adviser or accountant.
Choosing the best savings account for your lump sum comes down to your short and long-term savings goals, and whether you want easy access to your cash or to leave it untouched for several years. You could even split your money into smaller lump sums and do both. Insignis makes this easy by giving you access to more than 3,500 saving products from 45+ banks and building societies.
The information provided in this article is for general informational purposes only and does not constitute financial advice. We recommend consulting with a qualified financial adviser to discuss your specific circumstances and to receive personalised advice before making any financial decisions.
When we talk about a lump sum, we simply mean a payment made or received all at once (typically a large sum of money). This differs from making or receiving payments in instalments, as this usually involves smaller amounts of money paid over time.
There are several scenarios where you might receive a lump sum of cash throughout your life. For instance, you could:
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It’s important to note that a lump sum can mean different things to different people. You might have thousands, tens of thousands, or hundreds of thousands to decide what to do with. Depending on the amount of money and your financial commitments, here are a few of your options:
An emergency fund is exactly what it sounds like — a pot of cash that you can dip into to cover expenses when an emergency arises. For example, if you get ill, lose your job, or an unexpected bill lands on your doorstep. The general rule of thumb is to have 3-6 months of living expenses in your emergency fund at any given time.
A rainy day fund differs slightly from an emergency fund because it’s for occasional and expected expenses throughout the year (rather than unexpected emergencies). For instance, you might need to buy new tyres or pay to have your laptop fixed — costs over and above your monthly living expenses. A rainy day fund of anywhere from £500 to £5,000 can help you avoid borrowing money to cover those mid-sized expenses.
If you have existing debt, it can be a good idea to clear it before you start saving money — especially if the interest you’re paying is higher than the interest you’ll earn on the savings.
Depending on the terms of your loan, you might be able to overpay your mortgage (usually up to 10% of the remaining balance per year). Doing so can help reduce the amount of interest you’ll pay overall, saving you money in the long run.
Just beware that some mortgage lenders will charge you a penalty (called an “early repayment charge”) if you overpay by too much.
Many of us have long-term goals that require a lot of cash — and a lump sum can certainly help you kickstart your plans. Whether it’s paying for a wedding, buying a house, starting your own business, or driving off in a ruby red convertible, setting aside a chunk of money in a savings account and adding to it over time could help you achieve your goals faster.
But before you lock your savings away. You need to consider how quickly you’d like to make your dreams a reality. In other words, how much access do you need to your money?
As we’ll discover in the next section, some savings accounts make this easy, while others can take days, weeks, or even months before you can withdraw your cash.
You have several options for your lump sum, depending on your short and long-term goals for your money. Let’s explore each of them in a little more detail.
An ISA is an Individual Savings Account, and as of April 2024, you can now open and pay into as many ISAs as you like, up to the overall limit of £20,000 (for the 2024/25 tax year).
While Cash ISA interest rates aren’t typically high, they offer the added benefit of shielding the interest earned on savings up to the £20,000 annual allowance from tax. Note that contributions above this limit must be placed in other accounts, where the interest earned may be subject to tax. This makes them a great option if you’ve exhausted other avenues and are currently paying tax on interest earned elsewhere.
Be aware that if you deposit £20,000 into an ISA and then withdraw some of it, you’ll need to wait until the next tax year for your annual limit to reset before making another deposit.
An Easy Access Savings Account can be the perfect choice for an emergency fund or to keep money aside for a rainy day. That’s because it gives you complete flexibility with your cash, allowing you to withdraw money as and when required (usually without any penalties or charges — although this depends on the provider).
However, it’s worth noting that many Easy Access Savings Accounts in the UK come with a variable interest rate. This means the rate can go up or down, and it’s usually lower than some of the other options available.
In contrast to an Easy Access Savings Account, a Fixed-Rate Savings Account locks your money away to earn a fixed interest rate over a set period (a “term”). You usually can’t add to your savings during this time, but you can access them. However, you’ll probably be charged an early withdrawal fee if you take cash out before the term ends.
Putting your lump sum in a Fixed-Rate Savings Account might make sense if you’re planning a major purchase in the medium-to-long term (like a deposit for a house). You’ll find fixed-rate products where you can secure your money and earn interest for between 1 and 5 years.
A Notice Savings Account can give you the best of both worlds (easier access to your money, but still locked away for a period of time). With a Notice Savings Account, you must notify the provider that you’ll be withdrawing cash from your account in accordance with the term specified for the product. This is usually between 30 and 90 days, although it can be longer.
This gives you flexibility while benefiting from a higher interest rate than an Easy Access Savings Account. A Notice Savings Account might suit your lump sum savings if you know you’ll withdraw your funds again in the not-so-distant future.
If you’re trying to save a particularly large lump sum, spreading your savings across several accounts held with different deposit-takers is vital if you want to take advantage of the UK’s Financial Services Compensation Scheme (FSCS). The scheme guarantees that your savings will be protected up to £85,000 per person, per institution, if a bank or building society fails.
However, each institution must have its own distinct licence if you’re to optimise your FSCS coverage. If you deposit cash in different accounts and products with the same bank (or with different brands in the same bank/building society group), you won’t have access to the same level of protection.
Diversifying your savings can also help you pursue short- and long-term goals and ensure easy access in an emergency.
So, how do you find the accounts with the best interest rates?
When you add your savings to our award-winning platform, you get access to:
From Easy Access accounts to 5-year Fixed-Term products, you have the freedom to pick and choose the perfect mix of savings accounts for your current and future goals.
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