With inflation up, it's more important than ever that your savings are earning as much interest as possible. Here are the best options.
In the same month that the Bank of England raised the base rate to 0.75%, inflation has also gone up, to 2.7%.
That's bad news for your savings because 99% of savings accounts no longer keep up with inflation, according to Moneyfacts.
Whilst you can't beat inflation, it is possible to get close to it without having to say goodbye to your money for so long.
If you need ready access to your cash, you can now earn 1.5% with the Online Savings Account from Marcus, the newly introduced UK banking arm of Goldman Sachs.
Al Rayan Bank has raised the expected profit rates on their 18-month, two-year and three-year fixed term deposit accounts to 2.22%, 2.32% and 2.42% respectively, with the two latter rates leading the market.
However, it's possible to get a rate of 5% without locking your money away at all.
Before we reveal the top deals, it's worth flagging up two key developments that should change the way you think about savings.
A new savings landscape
The first is the Personal Savings Allowance (PSA).
Launched in April 2016, the PSA allows basic rate taxpayers to earn up to £1,000 and higher rate taxpayers to earn up to £500 in savings interest tax-free. Additional rate taxpayers do not have a PSA.
This means instant access, notice and fixed-rate bonds are now far more lucrative as providers will stop taxing savings interest at source.
The second change is the dramatic rise of current accounts as a viable home for your savings.
While banks have traditionally offered terrible rates of interest on in-credit current account balances (and many still do!), some are luring new customers by offering rates that comfortably beat the best buy savings accounts.
And, as they’re also included in the PSA, you get the same tax benefits to boot.
Let's look at all of these and more to see what rates you can get and where the best place to put your cash is.
As we’ve already mentioned, some current accounts offer inflation-beating rates. The downside is they have pretty miserly deposit limits, and increasingly require you to jump through a few hoops to qualify for the headline rate.
So, let's take a look at the best.
Nationwide’s FlexDirect account pays 5% interest on balances up to £2,500 for the first 12 months. The only condition is you need to pay in at least £1,000 a month.
One upside of the recent TSB IT chaos is that TSB's Classic Plus account now pays 5% on balances of up to £1,500, provided you credit the account with £500 a month.
The Tesco Bank Current Account also pays 3%, but this applies to balances of up to £3,000. To qualify, you'll need to pay in at least £750 a month and have at least three direct debits (not including Tesco Bank savings accounts).
Lloyds Bank is offering the Club Lloyds account, the interest rate of which has been reduced to 1.5% on balances between £1 and £5,000, as long as you credit the account with £1,500 a month and set up two direct debits from it. The Bank of Scotland's Classic Account with Vantage also pays 1.5%
If you don't want to spread your money around, Santander's 123 account pays 1.5% on balances of up to £20,000. You need to pay in £500 a month and set up at least two direct debits.
There's also a £5 a month fee on the account but you can earn cashback on some of your direct debits for household bills, which can help cover that.
Now let's look at how traditional savings accounts fare. As we noted at the top, none of these can currently beat inflation, but they do allow you to deposit far larger sums than current accounts.
Instant access savings accounts
At the moment, the top rate of interest on an easy access account is currently 1.5% from Marcus, which is part of Goldman Sachs. With a maximum deposit limit of £250,000, it may be useful for larger savings than current accounts.
You will need to renew the rate after a year, otherwise the interest rate drops to 1.35%.
The best standard, no bonus easy access account is Kent Reliance on 1.37%.
If you can wait for your cash for 180 days you can get a rate of 1.85% from PCF Bank, but you’ll need a sizeable £1,000 to open it. If you're prepared to sacrifice just 0.05% you can get your money in 120 days with Paragon's account, which only requires £500 to open, and pays 1.80%.
While the PSA has effectively made all savings accounts tax-free, you should still consider using your tax-free ISA allowance (which will remain at £20,000 for 2018/19).
That’s because any money you put into an ISA will stay tax-free long term, even if the interest you earn grows. With the PSA, any interest you earn beyond the £1,000/£500 limit is taxed at your marginal rate.
Savers are normally only allowed to open one Cash ISA account per tax year, which means having to choose between the flexibility of an easy access deal and a better rate by locking into a fixed-rate deal.
The best one-year deal can be found with Al Rayan Bank which offers an expected profit rate of 1.61%. However, you’ll need £1,000 to open an account.
Al Rayan Bank also offers the best Cash ISA over two years, with an expected profit rate of 1.81% on balances from £1,000.
The Bank of London and the Middle East is sitting at the top of the five-year ISA best buy tables, although the rate is well below inflation to an uninspiring 2.30%. Fixing for this long can be risky.
The Bank of London and the Middle East offers the best one-year fixed rate on the market, with an expected profit rate of 2.05%; you'll need a minimum deposit of £10,000: opt for ICICI's 2.02% rate instead and you'll only need £1,000.
If you're a Virgin frequent flyer, take a look at the Virgin Atlantic 1 Year Flying Club Savings Account, which pays Flying Club miles instead of interest (read more here).
Al Rayan Bank also offers the best two-year fixed rate, with an expected profit rate of 2.32%; the minimum deposit is £1,000.
Charter Savings Bank tops the table for its five-year bonds, with an expected profit rate of 2.70%.
The best rates of all await the most patient savers: PCF Bank will give you a rate of 2.75% on at least £1,000, but you won't be able to access your money until 2025.
It's a heck of a long time to lock your money away (more on why that's a risky decision here), so make sure you can live without it for that long!
Where to earn the most interest on your cash
Here's a table with all the top deals for you to compare at a glance.
The account you go for will probably be determined by the amount you have to save and whether you want instant access to your money.
Please note that we've only included the highest-interest accounts from each category (i.e. five-year bond, instant access ISA).
5% (one year only)
£1 (max: £2,500)
|TSB Classic Plus||Current account||5%||£1 (max: £1,500)|
Seven-year fixed-rate bond
Five-year fixed-rate bond
|Vanquis Bank||Four-year fixed-rate bond||2.52%||£1,000|
|Al Rayan Bank||Three-year fixed-rate bond||2.42%*||£1,000|
|Al Rayan Bank||Two-year fixed rate bond||2.32%*|
|Coventry Building Society||Five-year fixed rate ISA||2.30%||£1|
|Wyelands Bank||One-year fixed-rate bond||2.15%||£5,000|
|Monmouthshire Building Society||Three-year fixed-rate ISA||1.91%||£3,000|
|PCF Bank||180-day notice account||1.85%||£1,000|
|Al Rayan Bank||Two-year fixed-rate ISA||1.81%*||£1,000|
|Hodge Bank||Four-year fixed-rate ISA||1.80%||£1,000|
|Al Rayan Bank||One-year fixed rate ISA||1.61%*||£1,000|
|Al Rayan Bank||Instant access ISA||1.36%*||£50|
*Anticipated profit rate (read more here)
**Maximum three withdrawals per year or you lose your interest
What's clear though is that if you want a better return on your money in the longer term, you're better off looking beyond traditional savings accounts right now.
This article is regularly updated with the latest rates
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