Where is the best place for your savings in 2025?

Savings. Do you have any? Whilst we all understand the benefits of having savings, 16% of UK adults – around 8.4 million people – have no savings at all, 23% have less than £200, and 39% have less than £1,000. 

But, however small your savings may be, it’s important to make wise choices about where you keep those savings. Ideally you want your money to work for you, so that it gradually increases without you having to do anything extra to make that happen.

Also bear in mind that at some point, you may need to pay tax on interest from your savings. So when you are looking for the best place for your savings you also need to weigh up how much tax you might have to pay, and whether it would be better to look for a tax free alternative.

If you earn money and are a basic rate taxpayer, you have a Personal Savings Allowance that enables you to earn up to £1000 in interest from savings before having to pay further tax. And if you are a basic rate taxpayer but your income is less than your Personal Tax Allowance (currently £12570) you are able to earn up to £5000 interest tax free under the Starting Rate for savings.

There are a range of options for your savings, some of which are tax free. We are going to take a look at five possible options for your savings:

Bank or building society

Some bank current accounts pay interest on your balance, and may also offer other benefits such as a monthly bonus if you stay in credit, cashback, reductions on bills, cinema vouchers and magazine/movie subscriptions. So if you have a small amount of savings and could be disciplined enough to leave them in your current account without dipping into them, this could be an option for you, especially if the account benefits are useful.

Perhaps a better option is to set up a separate savings account with your bank or a building society. The Bank of England recently reduced the base rate to 4.25% which usually leads to interest rates on savings accounts being cut by banks and building societies. So you need to look carefully to find one that offers a competitive interest rate : it is still possible to earn interest of around 4%.

You are more likely to achieve higher rates of interest if you are able to put some money away for a longer period of time into a fixed interest account. Some accounts may require a long period of notice – up to 3 months – to take out your money. So make sure you check the small print to see what you can and can’t do – 

The other two main options for savings accounts are:

• Easy access accounts. They enable you to pay in and withdraw money any time, without notice. 
• Regular savings accounts. They require you to pay in a certain amount each month for a fixed period of time, usually 12 months. 

Savings and income bonds

Savings bonds can be a good alternative to a savings account, if you are able to lock away a sum of money for a set term, usually at least a year. Savings bonds can be a good way of saving towards a lump sum for future plans.

Another type of bond is an income bond, available from National Savings and Investments (NS&I). Income bonds pay interest on a monthly basis and so provide you with a monthly income on your savings. A variable rate bond has instant access but a lower rate of interest (currently 3.26%) and a fixed rate bond offers higher rates of interest (around 4%) in return for you fixing in for 1-5 years.

Interest on savings and income bonds is taxable, subject to the thresholds we looked at earlier.

Premium bonds

Another type of bond offered by NS&I is the Premium bond. Premium bonds can be bought in multiples of £25, and can be applied for online, by phone or by post. 

Premium bonds are a safe investment in that the original value of your investment is protected and you can cash in some or all of your premium bonds at any time. However, they pay no interest on the amount you invest. Instead, your premium bond numbers are entered into a monthly prize draw, with prizes of between £25 and £1 million, and NS&I calculate the average prize rate is equivalent to 4% interest on your investment.

Premium bond prizes are free from tax.

ISAs

Another form of saving is an ISA (Individual Savings Account). You can apply for an ISA from any financial provider. 

An ISA enables you to save up to £20000 a year and pay no tax on the interest.

There are four different types of ISA: cash ISAs, stocks and shares ISAs, lifetime ISAs and innovative finance ISAs. You can have more than one ISA, and more than one type of ISA, as long as you do not exceed the annual ISA allowance, currently £20,000.

• Cash ISA: This is similar to a savings account, except that you won’t have to pay tax on the interest. The best current interest rates on cash ISAs are between 4% and 5%.
• Stocks and shares ISA: This type of ISA invests your money in stocks and shares. You need to be aware that the value of stocks and shares can go down as well as up, so there will be times when the value of your ISA dips. But over a longer term, a stocks and shares ISA can outperform a cash ISA.
• Lifetime ISA: If you are aged between 18 and 40 you can also benefit from a government boost to your savings by taking out a Lifetime ISA (LISA). You can use a LISA either to buy your first home or save for later life. You can put up to £4,000 into a LISA each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
• Innovative finance ISA: An innovative finance Isa – or Ifisa – is an Isa that is based on peer-to-peer lending. A Ifisa provides the framework to match you up with borrowers, who could be individuals, businesses, or property developers. Potentially the interest rate could be higher than on other types of ISA, but there is more risk involved and you may not get your money back.

Stock market

We have already seen that some ISAs are based on the stock market. But it’s also possible to buy shares directly from companies rather than going through an ISA. Many banks and other financial organisations provide accounts that enable you to access an online share dealing platform. You will then be able to buy and sell shares from companies listed on the UK stock exchange as well as various overseas exchanges. 

As with the stocks and shares ISA, you need to be very aware that the value of stocks and shares can fall as well as rise, so it is advisable not to invest this way if you can’t afford to lose the money you are paying in. But for a small longer term investment it may be worth considering.

We hope that the above information helps you to find the best place for your savings in 2025 

And if at any stage you need some extra money to sort out existing financial commitments before starting to save, remember that Loans 2 Go offer a range of personal loans which could help you to get sorted.

For more useful tips on contemporary living, visit us here again soon at Loans 2 Go.