Video transcript

Imagine it's your birthday. Your nan's just given you a tenner in actual cash. Old school. And you have a few more cash gifts altogether. It makes 50 pounds. You could spend it straight away. Or you could listen to your nan and save it. Okay, so she doesn't have great taste in jumpers, but she might have a point about this.

Here's why.

Saving up for something you really want, or need can help you feel more confident with money. And a savings account is a great place to keep it safe. That way you won't lose it or spend it by mistake. Also, it's the best place for extra cash because it earns more interest. And no, we're not talking about how interested you are in savings.

We mean the money you can earn by using a savings account. Interest is an extra payment that can be added to savings or loans. If you borrow money, you pay interest. If you save money, you earn interest. Your interest rates tells you how much your money will grow over time.

Imagine you put your 50-pound birthday money into a savings account that has 5% interest per year. This means your money grows by 5% each year. After the first year, your £50 earns 5%, so you now have £52.50. And now you’ll earn interest on your interest too! This is called compound interest. So in Year 2, you’ll earn 5% interest on £52.50, bringing your total to £55. If you keep your money where it is, and your interest rate stays the same, by year 5 your money will have grown to £63.81.Interesting!

But not all savings accounts work the same way and there are different accounts you can use. For example, some accounts are great for day-to-day use. These are called current accounts. You can still save money in them, but sometimes you don’t earn any interest on them. Whereas, an account like an easy access saver is an account especially for savings, meaning you’ll earn interest. You can still access your money whenever you want to. But this can lower the interest rate for a higher interest rate.

You could use a fixed term savings account. This is where you agree to lock your money away for a set time, earning even more interest. But it does mean you can't access it whenever you want.

There are pros and cons to all types of accounts. If you’re not sure what will work best for you, ask for advice from a member of staff in a bank. It might feel like the possibilities are endless, but really, it’s all about building smart saving habits early. Save what you can, when you can. Work towards a savings goal and keep your money in a safe place.

So, remember:

Saving helps your money grow, especially if you choose an account with higher interest rates. Different savings accounts work in different ways, pick what works for you. Making smart money choices now sets you up for the future.