Saving with a bank or a building society

Saving with a bank or a building society comes down to a handful of practical questions: is the money safe, what does it pay, how do you get at it, and what does the tax office take. On safety, the answer is the same for both. The Financial Services Compensation Scheme protects up to £120,000 per eligible person, per bank, building society or credit union, and that limit rose to £120,000 on 1 December 2025¹.

What differs is ownership. A building society is a mutual institution offering savings and mortgage accounts and, often, a wide range of other financial services². It is owned by its customers, so saving with one normally makes you a member with rights to receive information and to voice your opinions on the way it is run³. A bank is owned by shareholders, so savers are customers rather than owners.

The Building Societies Association represents all 42 UK building societies, including both mutual-owned banks, as well as 8 of the largest credit unions⁴. Building societies and mutual-owned banks have total assets of almost £650 billion⁵. For a saver, the practical difference shows up in branch networks, member benefits and how the firm behaves when rates move, not in the protection you get.

Banks and building societies: how they differ for savers

The structural difference is ownership. A building society is a mutual, which means it has no external shareholders to pay. The Building Societies Association says members received an extra £4 billion in additional benefits compared to the rates and benefits offered by banks in 2024/25, though that figure covers building societies' members only and excludes mutual-owned banks¹⁰.

That mutual status brings rights as well as benefits. As a member of a building society you are more than just a customer; unlike a depositor with, or borrower from, a bank you have rights to receive information and to voice your opinions on the way your building society is run³. Those rights are exercised at annual general meetings, and you can read more about who can vote at a building society AGM.

Branches still matter to many savers. Among building society customers, 75% say a branch makes managing money easier, and 68% say their branch helps them feel their money is safe¹¹. Building societies also account for 46% of all cash ISA balances, so they are a significant presence in tax-free saving¹².

Both types of firm are covered by the same anti-discrimination law. It is against the law for a bank or building society to discriminate against you, for example, because of your race, sex, disability, religion or sexuality¹³. Both can also refuse to open an account, and they do not always have to give you a reason¹³.

For a fuller picture of how mutuals are structured and governed, see what is a building society and how does it work.

Types of savings account you can open

The account you choose matters more than the type of institution you choose it from. Most savers hold a current account for day-to-day payments, which is the easiest way to access your payments, and one or more savings accounts alongside it¹⁴.

Savings accounts other than instant access accounts come with less detailed information, sometimes provided in a summary box to help you compare different accounts from different banks and building societies¹³. Learning to read one is worth the effort: see reading a savings summary box.

Money in a bank, building society or PayPal account counts as capital for means-tested benefits, so savings can affect what you receive¹⁵. If that is a concern, how savings affect Universal Credit and other benefits sets out the rules.

Easy access or fixed rate: how each one behaves

Easy access accounts let you take money out when you want, usually with no penalty, and pay a variable rate that can move at any time. Fixed rate accounts pay a set rate for a set term, and the trade-off is access.

Fixed-rate bonds usually will not allow you to add further funds once you have made your initial deposit, and there can be big penalties for early withdrawal. In some cases you might not be allowed to access any of your money until the end of the term¹⁶. Coventry Building Society, for example, tells customers that with a fixed rate saver you will not usually be able to take money out before the account matures¹⁷.

Fixed-rate accounts may charge you an interest penalty if you withdraw money or close the account before the fixed period ends¹⁸. That penalty is usually expressed as a number of days' or months' interest, so the cost of getting out early depends on how far into the term you are.

The rate you are offered reflects the Bank of England base rate and what providers expect to happen to it. The effective interest rate paid on individuals' new time deposits with banks and building societies increased to 4.07% in April 2026, up from 3.76% in March⁹. That is an official average across the market, not a rate any particular provider offers.

Regular savers and bonus offers

Regular saver accounts reward you for paying in a fixed amount each month, usually with a higher rate than an easy access account but a cap on how much you can deposit. They suit someone building a lump sum from monthly income rather than someone with a large sum already saved.

Bonus offers work differently. Some banks and building societies may offer you money, lower overdraft fees or a better interest rate if you switch to them⁷. These offers usually come with conditions: a minimum monthly deposit, a set number of direct debits, or a requirement to hold a linked current account.

Interest on a fixed rate saver can be handled in more than one way. Coventry Building Society, for instance, lets you have interest paid annually into the fixed rate saver, or paid monthly or annually to another account if you would like an income while the society looks after your money¹⁷. Taking interest as income rather than leaving it to compound changes what you end up with, which is explained in compound interest and how savings interest is calculated.

For the mechanics of these accounts, see regular savings accounts explained and bonus rates and savings promotions.

Cash ISAs, Lifetime ISAs and Help to Buy: ISAs

There are four types of ISA available: cash ISAs, stocks and shares ISAs, innovative finance ISAs and lifetime ISAs¹⁹. An ISA may be set up as a stocks and shares account, a cash account, an innovative finance account or a Lifetime ISA²⁰.

A lifetime ISA is intended for house purchase and/or saving for retirement, either in the alternative or in combination²¹. If you are saving towards a first home, you can use a Help to Buy ISA or Lifetime ISA towards your deposit under the First Homes Fund²². If you have a Help to Buy ISA or Lifetime ISA, you can also use it to pay a deposit for a home through Right to Shared Ownership or Rent to Buy²³.

The Help to Buy: ISA is closed to new savers. The scheme was closed to new accounts on 30 November 2019, though Help to Buy: ISA account holders can continue saving into their accounts until 30 November 2029⁸. Monthly payments of up to £200 can be made until that date⁸.

Cash ISAs are not the only tax-free option, and the rules around transferring one provider to another catch people out. Why can't I transfer my ISA explains the process, and ISAs: a complete guide covers the full range.

Tax on savings interest and the rise from April

Most people can earn up to £1,000 in savings interest before paying tax¹⁴. Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free, while higher-rate taxpayers get £500⁷. Additional-rate taxpayers do not get a personal savings allowance.

If your income is below £17,570, you may also qualify for the starting rate for savings, which allows up to £5,000 of interest to be taxed at 0%⁷. For those on lower incomes, the starting rate for savings lets you get up to £5,000 of savings interest before paying tax²⁴. The allowances stack: you could earn up to £18,570 before paying tax on savings interest if you combine the personal allowance, the starting savings rate and the personal savings allowance²⁵.

How the tax is collected has changed shape. Most interest from banks and building societies is paid without any tax taken off²⁶. After the end of the tax year, your bank or building society tells HMRC how much interest you earned, and HMRC adds an estimated amount in your tax code for the current tax year (6 April to 5 April) based on the information given to them by your bank or building society for the previous tax year⁶. If your bank or building society tells HMRC that you have more than £10,000 in savings interest, HMRC will send you a notice to file a tax return⁶.

Eligible savers can register with their bank or building society to receive interest on their savings without tax being deducted, rather than having to reclaim tax they have paid on interest from HM Revenue and Customs²⁷. For that, the bank or building society provides form R85, which is filled in and returned²⁸.

The rise means the amount you can hold before tax becomes due falls. A higher-rate taxpayer would need £11,364 at 4.4% interest to reach the £500 allowance³¹. More detail sits in how tax on savings interest works and the personal savings allowance.

How to open a savings account or move your savings

Opening an account is usually straightforward, but the checks are real. A bank or building society is not allowed to open an account for someone who needs leave under the Immigration Rules to enter or stay in the UK but does not have it, and such a person also cannot be a joint account holder, signatory or beneficiary. Banks carry out status checks¹³.

You will be asked for your bank, building society or credit union account details when you claim benefits, so an account is often a prerequisite for receiving payments³². Benefits are usually paid straight into your bank, building society or credit union account³².

Moving savings is easier than moving a current account. Switching accounts is done by applying for an account with a new bank or building society who will move your accounts and payments for you³³. Where a current account is moving at the same time, the new account is opened before the old one is closed, current standing orders or direct debits are cancelled or moved, unused cheques and cards are returned cut into pieces, and enough money is left to cover uncleared cheques if transferring a balance³⁴.

If you need someone else to be able to reach the money, you can give someone else the right to access the money in your bank or building society account. To do this, you need to ask for a third-party mandate³⁵.

FSCS protection: up to £120,000 per person

The Financial Services Compensation Scheme protects your money up to £120,000 for all banks, building societies and credit unions that are authorised by the PRA and FCA³⁶. The scheme can pay back any money you hold with a failed bank or building society, up to its compensation limit of £120,000 per person³⁷. It protects up to £120,000 per person or company, per authorised firm³⁴.

The limit applies to deposits and savings only. Only the deposits and savings limit, covering savings in banks, building societies and credit unions, is £120,000 per eligible person, per eligible firm¹. Other FSCS limits cover different products and are set at different levels³⁵.

Two conditions matter. First, FSCS can only protect money held by UK branches of authorised banks and building societies³⁶. Second, the limit is per authorised firm, not per brand. Nationwide Building Society, including Virgin Money, Clydesdale Bank and Yorkshire Bank, sits under one licence, so money across those brands counts together towards a single limit³⁸.

Joint accounts get their own treatment, and there are rules for money held temporarily after a house sale or an inheritance. FSCS cover on joint savings accounts and temporary high balance protection explain how those work. If you are above the limit, what happens to money above the FSCS limit sets out the position.

When a saver dies or a fixed term ends

Two events catch savers out. The first is maturity. A fixed rate account runs to a set date, and when it matures the provider normally moves the money into a lower-paying account unless you give instructions. Coventry Building Society's own guidance is that you will not usually be able to take money out before the account matures¹⁷. Planning what happens at maturity is covered in what happens when a fixed-rate savings account matures.

The second is death. If your money is in a fixed-term account that has not matured, it can still be closed immediately, with interest paid up to the date of death³³. That is a specific exception to the usual early withdrawal rules, and it applies to the account holder having died³³.

Interest rates on bank and building society cash deposits often fail to keep pace with inflation, and savings accounts often pay less than the rate of price rises³⁵. That is the case for holding cash at all, not a reason to prefer one type of institution over another.

Where to get help

If something goes wrong with a savings account or an ISA, the Financial Ombudsman Service can look at complaints about individual savings accounts and ISAs¹⁹. Complaints about banks and building societies more generally follow the same route, and firms must handle them within set timescales.

Free, impartial guidance is available from MoneyHelper on savings products including cash savings bonds¹⁶ and current accounts¹⁴. If you are dealing with problem debt rather than saving, Debt: a complete guide to help, solutions and your rights sets out the options, and credit unions: a complete guide covers the mutual alternative for borrowing and saving.

Building societies play a role in tackling scams, and the sector has published work on the subject¹¹. If you are worried about a fake bond or a fraudulent savings offer, savings and fake bond scams: how they work and how to get money back explains what to do.