What is a variable rate savings account?
A savings account with a variable rate means that the rate of interest paid can change at any time, depending on various market factors.
One of the benefits of having a variable savings account is that your savings can be easier to access, when compared with many fixed rate accounts. Should you need to withdraw money, it is usually possible with no notice on easy access accounts, or with a notice period for notice accounts.
Variable rate accounts can include ISA savings accounts as well as non-ISA accounts.
What variable rate savings accounts do The Cumberland offer?
Instant Access
Our Instant Access accounts have a variable interest rate and come with the benefit of having access to your money whenever you need it. You can make withdrawals and transfers at any time without having to pay a fee or give notice, useful for spontaneous treats or the transferring of funds to a current account for regular expenditure. We have a choice of accounts from branch-based to an online eSaver.
Notice
Notice Savings Accounts fall somewhere in between instant access and fixed rate. They work by allowing you access to your savings, but only after an agreed notice period. These accounts are useful if you know that you may need access to your savings, should your circumstances change.
Regular Saver
A way to build solid savings habits, setting aside savings each month. Regular savings accounts are a way of developing a savings habit and making timely use of any amount you may be able to save. We offer a more traditional regular saver and a version for those saving for their first home. They can be useful for saving for a goal or prospective first-time buyers to develop a habit of making regular monthly payments.
Instant Cash ISA
Our Instant Cash ISA has a variable interest rate and you can withdraw up to £500 each day in cash and up to £99,999.99 by crossed cheque (cheques for larger amounts are normally available the following day), subject to the minimum operating balance of £1 being maintained.
A Cash ISA savings account has a special tax status to ensure you incur no tax liability on the interest earned. You may only contribute new money to one Cumberland Cash ISA in a tax year. This does not restrict your ability to open/pay into another Cash ISA with another provider, but you will still need to remain within the annual ISA allowance across all providers for the current tax year.
Under current tax rules many savers may not have to pay tax on savings interest in non-ISA accounts. However, an ISA ensures that regardless of your income, total interest earned or any other relevant circumstances, you incur no tax liability on your ISA interest and your balance is shielded in the ISA wrapper for future years.
For more information on your personal savings allowance and how your savings are taxed, check out our guide: Tax On Interested Generated By Savings
Children’s Accounts
Whether it’s saving up pocket money for a rainy day or saving for your child’s future – we offer a variety of children’s savings accounts to help you with their savings goals.
Find out more about opening a children’s savings account.
What are the advantages of a variable rate savings account?
Easy access
With instant savings accounts, there is less restriction on accessing your funds than less accessible accounts. If you need to withdraw your money, in most cases you are free to do so without penalty*.
Interest rate fluctuations
Variable rate accounts may perform better than fixed term alternatives in an economy where interest rates are rising. This is because your variable rate may rise, whereas a fixed rate alternative would remain the same for the duration of the term.
Opening balance
Where fixed rate accounts may require a large opening balance, variable-rate accounts can often be opened with as little as £1.*
Topping up your savings
Variable rate accounts usually allow the account holder to add additional funds as and when they choose. With fixed rate accounts, it is often a case that the provider has the option to close a particular issue of an account to further funds.*
*Always check the terms and conditions of your account for confirmation.
What are the disadvantages of a variable rate savings account?
Unpredictable returns
One of the negatives of a variable rate savings account is the unpredictability of returns. You won’t know for sure exactly how much interest you will earn over the term, which makes financial planning more difficult, especially when targeting specific savings goals.
Interest rate fluctuations
With a variable rate savings account, you are more exposed to fluctuations in interest rates. If market rates decrease, your account’s interest rate may also decrease.
Summary
An instant access savings account offers easy access to your money should you feel that you aren’t able, or don’t want to lock it away for a period of time. In times where interest rates are rising, an instant access account with a variable interest rate may also have the benefit of the interest rate increasing.
On the other hand, returns from a variable rate account are less predictable due to the changing rates. In an environment where interest rates decrease, you could gain less interest than a fixed rate alternative.
By weighing the pros and cons, you can decide if this option suits your financial goals.
Explore The Cumberland’s full range of savings accounts to discover whether we have an option that suits you or make an appointment to speak with a member of our savings team either in branch or over the phone.