UK & US Savings Accounts (Account Options)

I’m lumping these together because there’s no practical difference, aside from the currency. These aren’t really investment accounts, but just to cover the rest of the universe of accounts that Americans in the UK might have.

Synopsis

Short term savings or emergency fund only – low interest rates, often below inflation. There might be some deals that beat inflation, although they’re often only for smaller amounts.

Priority

Once you’ve built an emergency fund and put it somewhere safe, there’s no reason to keep building up value in a savings account. The exception would be short term goals – a house purchase or renovations, new car, special vacation, etc.

Eligibility

Pretty much everybody – special kids savings accounts for people under 16 or 18.

Risk & Return

Very safe, but with typically low interest rates.

UK accounts are insured by FSCS up to £85,000 per financial institution (with a caveat that several different “brands” of banks may be the same actual financial institution. For example, Halifax and RBS are part of the same financial institution, so two accounts, one with each, would only be covered to a total of £85k). There are also provisions for temporarily higher balances, like when you’re moving money around between a house sale and another purchase. More details on MoneySavingExpert

US accounts are insured by FDIC up to $250,000 per depositor per bank.

Withdrawal Options

Withdraw any time with no penalties, unless it’s a “fix” or “limited access” account in the UK, or the similar “Certificate of Deposit” in the US.

Contribution Limit

Typically none, although some accounts may have specific limits – “regular savers” are popular in the UK, where you can only put in a maximum amount per month, but they typically pay higher interest.

Fees

Typically none, unless you need to access a limited account early.

Tax Treatment – Contributions

Post-tax money for both the US and UK, no benefits.

Tax Treatment – Withdrawals

Interest is taxable as income in both the US and UK. The UK has a Personal Savings Allowance that means that most UK taxpayers don’t pay tax on interest. Only interest above the following amounts is taxable:

  • 20% tax bracket: above £1,000
  • 40% tax bracket: above £500
  • 45% tax bracket: all interest is taxable

The US doesn’t have a similar system, so if you make £100 interest in a UK bank account, you could pay US tax on it (depending on what the rest of your return looks like with deductions, foreign tax credits, etc.).

Further Reading

MoneySavingExpert on UK savings accounts

I haven’t found a similar site for US accounts (lots of kind of scammy sites out there, or ones looking just to drive affiliate revenue), but if you know of one I’ll happily add it.

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