No savings strategy? Here’s why you might need one

With 71% of UK adults having some form of savings account, according to Forbes, the total value held in savings has risen by around £1 trillion in the past decade – exceeding £1.9 trillion as of October 2025.

Saving can be an effective way to maintain and grow your wealth with interest. However, those without a comprehensive savings strategy could see the value of their funds stagnate or even diminish over time.

As MoneyWeek reports, the average interest rate for savings was 3.6% as of 29^th November 2025. With inflation sitting at 3.8%, your money’s value is already being eroded year-on-year.

Additionally, paying little attention to your savings could see your interest earnings subject to avoidable Income Tax, or result in your funds being locked away when you need them.

Read on to discover how a savings strategy could help you maximise your interest earnings whilst mitigating your Income Tax liability and retaining vital access to funds.

Savings interest rates have declined in 2025

Broadly speaking, the rate at which your savings accrue interest is guided by the Bank of England’s (BoE) benchmark bank rate, also known as the base rate.

Having risen gradually from 0.1% in December 2021 to 5.25% in August 2023, the bank rate steadily declined between August 2024 and August 2025. It has since remained fixed at 4% as of 10^th November 2025, although there remains some speculation that it could fall in the months ahead. As a result, your savings could be growing at a slower pace.

However, remember that nothing is certain, and rates could also rise in the months ahead. By having a comprehensive savings strategy, you could help mitigate the impact of fluctuating rates to maximise your interest earnings.

You may be able to secure higher interest rates with different account terms

The interest rates offered on different savings accounts can vary significantly depending on whether you need regular access to your funds or are able to lock savings away for a few years.

You can typically choose from three types of savings accounts.

Easy access

These accounts generally offer immediate access to funds, although you may be limited to a set number of withdrawals. Interest rates are typically variable depending on the BoE bank rate, although some accounts will offer an additional bonus rate for the first 12 months.

Notice

Notice accounts give you limited flexibility for withdrawing your money. Typically, you will need to give several weeks’ notice before accessing your funds. Interest rates are variable but may be higher than easy access alternatives.

Fixed-term

With these accounts, you can typically secure a guaranteed interest rate in return for locking your savings away for a defined period. Usually, the longer the term, the higher your interest rate will be, with terms typically ranging from six months to five years.

That said, with interest rates predicted to fall in the coming months, restricting access to your savings might not necessarily result in a higher interest rate. As of October 2025, Which? reports that the highest easy access interest rate available was 5%, whilst the top rate for a five-year fixed-term account was 4.54%.

As a result, it could be worth spreading your savings across multiple account types with varying terms and interest rates. That way, you can increase the likelihood of a portion of your savings benefiting from higher rates, as well as retain flexible access to some of your funds.

Your interest earnings could be liable for Income Tax

In some circumstances, the interest you accrue through saving outside of an ISA could be subject to Income Tax at your marginal rate.

However, depending on your Income Tax bracket, you may benefit from a Personal Savings Allowance (PSA). Interest earned below your PSA is generally tax-free. As of 2025/26, the Income Tax thresholds and relevant PSAs are:

Additionally, if your total annual income is less than £17,570, you could be eligible for a starting rate for savings. This could allow you to earn up to £5,000 in interest tax-free, with this allowance reducing by £1 for every £1 your income exceeds the £12,570 Personal Allowance.

Remember, your interest earnings will usually count towards your Income Tax bracket and be taxed at your marginal rate. Without careful planning, your interest accruals could push you over a higher tax threshold.

With an effective savings strategy, you could mitigate your tax liability by taking advantage of tax-free allowances and keeping annual interest earnings below key thresholds.

Interest earned in a Cash ISA is often tax-efficient

As of 2025/26, you can typically pay up to £20,000 a year into a Cash ISA without interest accruals being subject to Income Tax as described above.

This allowance is applicable across all adult ISAs, including Stocks and Shares ISAs and Lifetime ISAs (LISAs). LISA contributions are limited to £4,000 per tax year and form part of the overall ISA contribution limit. So, you will typically only be able to pay the full £20,000 into a Cash ISA tax-efficiently if you haven’t paid into another adult ISA in the same tax year.

Whilst Cash ISAs can offer an attractive means of growing your wealth tax-efficiently, it’s worth noting that interest rates can often be lower than other types of savings accounts.

For example, MoneyWeek reports that the highest interest available for a one-year fixed Cash ISA was 4.35% as of November 2025, whilst savers could generate interest at up to 4.46% with a one-year fixed savings account.

A combination of multiple account types could help meet your needs

With a variety of interest rates, tax allowances, and accessibility options available, finding a single account that meets all of your requirements might not be straightforward.

In some cases, spreading your savings across multiple accounts with varying terms can be an effective way to maximise your savings growth whilst retaining access to some funds.

Indeed, with some accounts offering higher interest rates for the first year, it could even be worth moving your funds regularly to take advantage of the best rates available.

Balancing various savings account terms against your needs can be complex. A Financial Planner can help you define a savings strategy that works for you, keeping interest, tax, and accessibility in mind to help you protect and grow your wealth efficiently.

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Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.