Savers may want to get their skates on to benefit from the top-paying accounts, as providers are starting to pull deals from the shelves.
If you’re lucky enough to have spare cash, you can benefit from some of the highest savings rates since 2008, following a series of interest rate hikes. Savers can receive more than 5.80% interest on some fixed rate bonds, but deals are starting to disappear as rates are expected to fall over the long term.
Some providers are starting to withdraw the best rates. For example, Union Bank of India was paying 6.05% on its one-year fixed rate bond on a minimum deposit of £1,000, but applications for the account were closed recently. Read more in our article Fixed rate savings bonds explained.
Both fixed and variable savings rates have been creeping upwards over recent months, following 14 hikes in the Bank of England base rate since December 2021. Interest rates currently stand at 5.25% and have remained at this rate for the last three months. However, inflation fell in October to 4.6%, which is lower than inflation, prompting expectations that the Bank of England may not continue hiking rates.
The recent interest rate increases have mostly been factored into the top savings rates, with the highest rates for easy access accounts reaching 5.22%, and rates on two-year fixed-rate bonds sitting at 5.80%. The increase in rates has also seen NS&I hike the prize rate on Premium Bonds from 4.00% to 4.65%. Read more in our article Are Premium Bonds better than savings accounts?
It’s also important to note that with inflation currently at 4.6%, there are still some savings accounts offering returns paying more than inflation. You can read more about the effects of both inflation and interest rates on your savings in our article What does inflation mean for my money?
With interest rates currently higher than inflation, savers are in a stronger position. So if they’re accessing the current top-rate easy-access account, which pays 5.22%, they will still be earning 0.62% in real terms at the current rate of inflation. On £10,000 of savings, that is an earning of £62 a year in real terms.
However, the increase in savings rates means that savers are earning more on their cash than from stock market returns for the first time since 2015.
What are the top savings accounts?
With the cost of living soaring, it’s more important than ever to ensure you’re getting as much in interest as possible from your cash savings.
Easy-access savings accounts usually enable you to take your money out whenever you want, without any loss of interest. It’s generally considered wise to have three to six months’ worth of essential spending in an easily accessible account to cover any unexpected costs, such as car repairs or a boiler breakdown.
For example, Metro Bank is paying 5.22% on a minimum deposit of £500 on its Instant Access Savings (Limited Edition).
Elsewhere, Ulster Bank is paying 5.20% on a minimum deposit of £5,000 on its Loyalty Saver.
Find out more about the best accounts at present in our regularly updated article Best easy access savings accounts.
You can benefit from higher rates in Cash ISAs for tax-free interest, if you aren’t using your £20,000 annual allowance to invest elsewhere. Read more in our article Best cash ISA rates – which cash ISAs pay the most interest?
Fixed-rate bonds usually pay more than easy access accounts, but you can’t withdraw money from this type of savings account before the term ends without penalty. For example, Metro Bank is currently paying 5.80% on its Fixed Term Savings Account – One Year on a minimum deposit of £500. If you need the money, you can close the account, but this will mean some charges, such as loss of interest. However, you will have the security that the interest rate will remain the same until the end of the account term. Find more information about these accounts and the top rates in our article Fixed rate savings bonds explained.
What should savers do?
If you have savings in a variable rate account, now is a good time to see if you can get a better rate elsewhere. Check savings websites such as SavingsChampion or price comparison sites such as Moneyfacts, or GoCompare to see if you can find a higher interest rate to move to.
If you choose to tie-up your cash in a fixed rate savings account, this means that you cannot move your savings into an account paying a higher rate with another provider. If you have money in a fixed rate account paying a low rate, check what the penalties are for closing your account.
Rachel Springall, from Moneyfacts.co.uk, said: “Spreading cash across both easy access accounts and short-term fixed accounts to secure a guaranteed return could be a wise move to get the best of both worlds.”
Alternatively, if you have plenty of cash savings set aside that you can access at any time, you may want to consider investing for long term gains. After all, savings rates are not high enough to keep up with rising living costs. Meanwhile, stock markets have fallen substantially this year, which could make it a good time to be invested to benefit for the long term. Find out more in our article Investing – the basics and Savings accounts or shares – which is the best option?
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