Short-term savings and investments

If you prefer to save over a shorter period, here's everything you need to know about your short to medium term saving options.

Summary

Cash ISAs	Savings accounts	Fixed rate bonds	National Savings & Investments (NS&I)
A tax-free way to save. With a Cash ISA you can save up to £5,760 a year, with a higher interest rate than normal savings accounts, and the interest earned is tax-free.	Your savings account is usually held with the same provider as your current account and allows you to regularly transfer an amount into savings for a fixed period and with a higher rate of interest.	Your money is tied into a fixed rate bond for a specific period, usually one-two years and pays a fixed rate of interest for that set term.	National Savings & Investments are backed by HM Treasury and offer a range of products to suit your saving needs, including Premium Bonds and Income Bonds.

Tax treatment

Cash ISAs	Savings accounts	Fixed rate bonds	National Savings & Investments (NS&I)
ISAs don't have to be declared on your tax return and any interest earned is free from tax.	Interest paid on your savings is treated as an income, therefore you may have to pay tax on it, depending on your tax bracket. If you are a basic-rate tax payer, for example, you won't get any tax back, but you won't pay any more.	The rate of interest payable is fixed for the duration of the term. The highest interest rates are usually available on accounts with the longest terms.	NS&I Premium Bonds, NSI Direct ISA, NS&I Child Bonus Bond are tax-free. NS&I Direct Saver, NS&I Income Bonds, NS&I Investment Bonds, NS&I Investment Account are all taxable and interest is paid gross.

How to make payments

Cash ISAs	Savings accounts	Fixed rate bonds	National Savings & Investments (NS&I)
Regular payments or a lump sum, up to a maximum of £5,760 per tax year.	You can transfer money into your savings account whenever you like. The most beneficial way is to set up a regular amount as a direct debit - that way you can ensure that you are always contributing.	Usually only one deposit is allowed when the account is opened, so it is particularly suited to those with a lump sum to invest.	This varies according to product. For example, NSI Premium Bonds have £100 minimum purchase, maximum holding £30,000; you can invest anything from £500 to £1 million in NS&I Income Bonds.

When you can withdraw money

Cash ISAs	Savings accounts	Fixed rate bonds	National Savings & Investments (NS&I)
You usually have instant access to your money, but some providers do have a notice period between seven and 180 days. You can transfer your Cash ISA to a Stocks and Shares ISA.	It depends on your provider and a penalty and notice period may apply.	Most fixed rate bonds will not allow access to the savings during the term or could involve a penalty.	NS&I Premium Bonds can be cashed in whenever you like. There is a no notice, no penalty policy for NS&I Direct Saver, NS&I Income bonds, NS&I Direct ISA and NS&I Investment Account.

Pros

Cash ISAs	Savings accounts	Fixed rate bonds	National Savings & Investments (NS&I)
A tax-efficient way to save and you can open a Cash ISA with one provider per tax year. You are able to hold more than one ISA providing they are from different years.	It is a simple way to save, particularly if you hold your savings account with the same provider as your current account.	It can be a short-term way to save, without the temptation to make withdrawals.	NS&I products are backed by the government and are therefore very secure. There's a monthly £1m jackpot for Premium Bonds

Cons

Cash ISAs	Savings accounts	Fixed rate bonds	National Savings & Investments (NS&I)
You are limited to saving up to £5,760 per year.	There are no tax benefits and the rate of interest may not be as high as other forms of saving.	Because the interest is fixed, the rate could become uncompetitive.	NS&I savings products may not offer the most competitive interest rates; you don't receive any interest on Premium Bonds.

Important information and assumptions

References to legislation and taxation are based on Standard Life's understanding of law and HM Revenue and Customs Practice. Legislation and taxation are liable to change in the future.