A series of increases in the Bank of England base rate may be bad news for borrowers, but it’s great news for savers as interest rates on savings accounts have been rising.
Not all banks and building societies pass on the interest rate rises, however, and with inflation falling to 4.6% in October, rates are likely to start falling so it’s important to shop around for the best possible returns.
Here’s what you need to know to make sure your savings are working as hard as they possibly can for you.
Why choosing the right account matters
More than one in 10 of us (15%) don’t have a savings account, according to money.co.uk, and while many people may feel more comfortable having their money readily available in a current account, these accounts rarely pay the best returns.
It’s especially important when inflation is high, as rising prices eat into the purchasing power of your cash. For example, inflation is currently sitting at 4.6% in the year to October, so something that cost £10 last year will now cost £10.46.
That being said, inflation is currently lower than the Bank of England’s base rate, so it’s possible to find savings accounts that pay interest that matches or beats inflation. These accounts are likely to start disappearing though, so if you’re looking for the best rate, don’t hang around.
What savings options are there?
There are lots of types of savings accounts, all of which serve different purposes. Some of the most popular types of savings accounts include:
- Easy access savings accounts – These are savings accounts which allow you to make withdrawals instantly or easily without penalty
- Fixed-rate bonds – These accounts offer a fixed rate of interest over a set period of time, and you cannot usually make withdrawals during the fixed term
- Notice accounts – Notice accounts require you to give notice to make withdrawals. If you don’t, you’ll usually have to forgo some interest as a penalty
- Regular savings accounts – These accounts allow you to put away small amount of money on a regular basis, typically ranging from £10-300 a month. The highest-interest paying regular savings accounts are generally linked to current accounts, so you must have a current account first before you’re eligible to open a regular saver account
- Cash ISAs – A tax-efficient way to save money, where you can save up to £20,000 a year and not pay any income tax on the interest you earn.
You can read more about how these accounts work in our guide What are the different types of savings accounts?
How many savings accounts should I have?
The number of savings accounts that you want will really depend on what your savings goals are and your personal situation. There’s no perfect combination of accounts, but many people will have a mixture of different types of savings accounts to suit different needs.
For example, if you have a long term goal of buying a new home, but also want to save for things like holidays, or one-off purchases, then a combination of a fixed-term account, and something with easier access might be a good combination.
The types of account we’ve listed above aren’t exhaustive, and there are lots of other types of savings accounts. If you aren’t sure where to start, an internet search of types of savings accounts that are good for your specific financial goals could be a good place to start.
Bear in mind that if something goes wrong with your savings provider, and they run into financial difficulties, the Financial Services Compensation Scheme (FSCS) will only compensate you with a maximum pay out of £85,000 per financial institution. That means if you have more than £85,000 in savings with one financial institution, then it’s worth moving any fund above this amount you have to a different bank. Find out more in our guide Are my savings safe?
What are the best savings accounts?
Interest rates are changing all the time, but at the time of writing the highest savings rates included:
Easy access accounts
Metro Bank – Instant Access Savings (Limited Edition)
Interest rate (AER) – 5.22%
Minimum opening balance – £500
Small Print – Easy access. Rate of 5.22% AER paid out for 12 months if the account is funded by at least £500 within the first 28 days of account opening. Interest is paid monthly.
Fixed-rate bonds
Metro Bank – Fixed Term Savings Account – One year
Interest rate (AER) – 5.80%
Minimum opening balance – £500
Small Print – No access within the term. Customers must hold or open a Metro current account or instant access savings account, to run alongside this account. Interest must be paid to a nominated Metro Bank account, it cannot be added to the account. On maturity, the account is transferred to the nominated account. Interest is paid monthly or on maturity.
Variable rate Cash ISAs
Metro Bank – Instant Access Cash ISA (Limited Edition)
Interest rate (AER) – 5.11%
Minimum opening balance – £500
Small Print – Easy access. Rate of 5.11% AER paid out for 12 months if the account is funded by at least £500 within the first 28 days of account opening. Allows transfers in. This is a flexible ISA. Interest paid annually on the 5th April.
Fixed-rate Cash ISAs
Metro Bank – One-Year Fixed Rate Cash ISA
Interest rate (AER) – 5.71%
Minimum opening balance – £1
Small Print – Access on closure only, subject to 180 days’ loss of interest. Transfers in are allowed. This is not a flexible ISA. This is not a portfolio ISA. On maturity, the account is transferred to the Instant Access Cash ISA. Interest is paid on the 5th of April each year and on maturity.
Notice accounts
United Trust Bank – 200d Notice Account Issue 2
Interest rate (AER) – 5.58%
Minimum opening balance – £5,000
Small Print – Withdrawals are subject to 200 days’ notice only; no earlier access is allowed. Interest is paid on 31 October each year.
Regular savings accounts
Nationwide – Flex Regular Saver Issue 2
Interest rate (AER) – 8.00%
Minimum opening balance – £200
Small Print – Only available to Nationwide current account holders. 3 withdrawals allowed per year – the 4th withdrawal will result in your rate dropping to 2.15% AER/gross a year (variable) for the rest of the term. Interest is paid annually. After 12 months, your money will be moved into an instant access savings account with a lower rate of interest.
Monthly income accounts
Metro Bank – Fixed Term Savings Account – One year
Interest rate (AER) – 5.80%
Minimum opening balance – £500
Small Print – No access within the term. Customers must hold or open a Metro current account or instant access savings account, to run alongside this account. Interest must be paid to a nominated Metro Bank account, it cannot be added to the account. On maturity, the account is transferred to the nominated account. Interest is paid monthly or on maturity.
(Rates correct at time of writing: 4.12.23)
So don’t delay, check how much interest you’re earning on your savings now, and if your returns are nowhere near close to those shown above, it’s time to vote with your feet and move elsewhere.
Anna Bowes, founder of savings website SavingsChampion.co.uk said: “While there are still no savings accounts that can outpace inflation at the moment, the winners are those who shop around for the best savings accounts that suit their needs.”
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