The Bank of England reduced the base rate from 5.25% to 5% in August 2024, and while this isn’t great news for savers, it’s still possible to find plenty of accounts offering inflation-beating returns.
Not all banks and building societies offer competitive savings rates, however, 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. Thankfully inflation has eased considerably in recent months and is currently sitting at 2.2% in the year to July, so something that cost £10 last year will now cost £10.22.
Inflation is currently much lower than the Bank of England’s base rate, so it’s possible to find numerous savings accounts that pay interest that matches or beats inflation.
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
Principality
Online Bonus Triple Access Issue 2
Interest rate (AER) – 5.00%
Minimum opening balance – £1
Small Print – Three withdrawals can be made from the account every calendar year. Interest rate includes a 1.40% bonus for the first 12 months. Interest is paid annually.
Fixed-rate bonds
Union Bank of India
Interest rate (AER) – 5.25%
Minimum opening balance – £1,000
Small Print – No access within the term. On maturity, the account is transferred to the Savings Account. Interest is paid on maturity.
Variable rate Cash ISAs
Plum
Interest rate (AER) – 5.17%
Minimum opening balance – £100
Small Print – The rate of 5.17% AER includes a bonus of 0.88% for the first 12 months, providing the following conditions are met: The account balance is kept at £100 or more and you have no more than 3 withdrawals in a single year. Should you make a 4th withdrawal or your balance drop below £100, the interest rate will drop to 3.00% AER. Transfers of existing ISA funds are allowed, but these receive the basic rate of 4.29% AER. The basic rate of interest of 4.29% is paid monthly, and the Plum bonus rate of 0.88% will be added at the end of the first year. This is not a flexible ISA.
This savings account is powered by the provider’s partner, CitiBank . CitiBank is covered by the Financial Services Compensation Scheme, so funds deposited are protected up to £85,000 subject to eligibility. Be aware that any funds that you already hold with CitiBank will also count towards this limit.
Fixed-rate Cash ISAs
Virgin Money
1 Year Fixed Rate Cash ISA Exclusive Issue 14
Interest rate (AER) – 5.05%
Minimum opening balance – £1
Small Print – You need to have a current account with Virgin Money which was opened on or after 4 December 2019, or you originally opened your current account with Clydesdale Bank, Yorkshire Bank or B. The maturity date is 29/08/25. Full and partial withdrawals are permitted during the term, but you will be charged 60 days’ interest on the amount taken out. Interest is paid on maturity.
Notice accounts
Prosper
185 Day Notice Tracker (Provided by Santander International)
Interest rate (AER) – 5.34%
Minimum opening balance – £20,000
Small Print – Withdrawals are subject to 185 days’ notice; no earlier access is allowed. Rate tracks the BoE base rate. Interest is paid monthly. The account is available exclusively through the Prosper app, powered by the Akoni cash savings platform, and provided by Santander International. Santander International is covered by the Financial Services Compensation Scheme, so funds deposited are protected up to £85,000. Be aware that any funds that you already hold with Santander International will also count towards this limit.
Regular savings accounts
Virgin Money
Interest rate (AER) – 10.38%
Minimum opening balance – £1
Small Print – Easy access. You need to have a current account with Virgin Money which was opened on or after 4 December 2019, or you originally opened your current account with Clydesdale Bank or Yorkshire Bank. The maximum amount you can earn interest on is £3,000. This is a fixed interest account with a maturity date of 31st July 2025. On maturity, the account is transferred to a variable rate Everyday Saver. Interest is paid quarterly in March, June, September and December.
Monthly income accounts
The Loughborough Building Society
One Year Monthly Interest Fixed Rate Bond – Issue 2
Interest rate (AER) – 5.05%
Minimum opening balance – £20,000
Small Print – No access within the term. Interest is paid on monthly on the 1st of each month.
(Rates correct at time of writing: 14.08.24)
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: “There are literally hundreds of savings accounts available currently paying more than inflation, even if you pay basic rate tax on your interest. Of course once the base rate does start to fall, with a variable rate accounts, the rate you are earning can be cut at anytime. Which is why fixed rate bonds are proving so popular at the moment.
“Although you might earn a little less immediately as longer-term rates are lower than shorter-term, this could hedge against future interest rate cuts and see you sheltering at least some of your cash from the effects of inflation for longer.”
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