Top savings accounts: where to find the best rates for your cash

As the very last account paying 5% on savings is set to be slashed, we look at the next best home for your savings.

The Bank of England's decision to slash interest rates to a record low is starting to hammer the savings market as expected.

This morning, Nationwide announced plans to slash the headline rate on its popular FlexDirect current account to new customers from 5% to just 2% in May.

What's more, you'll only earn that rate on the first £1,500 in the account – down from £2,500 at present.

Crucially, anyone who switches in April will still get the generous 5% rate on £2,500 guaranteed for a year, so if you are confident it's the right account for you and you meet all the criteria, we recommend you apply as soon as possible.

Why are savings rates falling?

Just last year, there were a handful of banks and building societies willing to pay you 5% on your cash, but following Nationwide's announcement, it means they have all now disappeared (or at least will do next month).

While the Nationwide change is the most noteworthy, rates are being cut across the board, leaving savers facing a huge challenge if they want their funds to at least beat inflation (currently 1.7%).

Savings made simple: the best savings platforms

The Bank of England has recently cut its Base Rate twice, leaving it at a historic low of 0.1% (down from 0.75% earlier this year) in a bid to boost the economy.

Savers haven't yet felt the full effect of these cuts as they can take a while to filter through the market, but we're already seeing some changes for the worse.

Since we last updated this article in late March, top-paying fixed-rate bonds are marginally lower (0.05%).

There have been far bigger cuts to top Cash ISA rates of up to 0.35%, while one of the best accounts on the market – Virgin Money’s Double Take E-ISA – has been pulled.

At the very least, when saving, you must aim to beat inflation (currently 1.7%) to avoid your money actually losing value in real terms.

While this is becoming more difficult, it is still possible as our round-up of the best savings rates below will show you.

Note that some banks have already confirmed plans to cut rates further this year, which we’ve flagged if the account in question currently offers one of the best rates.

Best savings rates now available

If you're happy to lock your money away for a while, Gatehouse Bank offers a rate of 2% on its five-year bond.

This rate is offered by a Shariah-compliant bank, which means it pays an expected profit rate rather than a guaranteed savings rate.

That said, such firms have an excellent track record when paying interest, and your savings are still covered by the FSCS, which protects funds up to £85,000.

If you want a more traditional account, RCI Bank offers 1.9% on its five-year bond.

A new savings landscape

If you're new to savings, there are two key developments that should change the way you think about your cash.

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 the source.

View stocks & shares ISAs (Image: Shutterstock - loveMONEY)

Not just about traditional savings accounts

The second change is the 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.

As we mentioned at the start, the very best of them is about to disappear, but the rates on offer are still good enough to warrant inclusion in our roundup of the best homes for your savings.

Plus, 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.

Current accounts: get up to 2% from May

As we’ve just 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.

As mentioned earlier, if you fail to apply for the Nationwide’s FlexDirect account this month, the rate you'll get will fall from 5% to 2% and only be payable on the first £1,500 on the account (instead of £2,500).

The 2% rate will apply for 12 months, falling to 0.25% thereafter. To qualify, you'll still need to pay in at least £1,000 a month.

TSB's Classic Plus account currently pays 3% on balances of up to £1,500 provided you credit the account with £500 a month, register for internet banking and paperless billing, but the rate on this account is being slashed to 1.5% from 2 May 2020.

Last year, Club Lloyds (from Lloyds Bank) and Bank of Scotland’s Classic Account with Vantage cut their rates from 1.5% to 1% for balances between £1 and £4,000, but you can earn 2% on balances between £4,000 and £5,000.

Now let's look at how traditional savings accounts fare.

Make sure you're earning a top rate: compare savings accounts, Cash ISAs and P2P investments (capital at risk)

Instant access savings: get up to 1.31%

While you can't beat inflation, access savings accounts are far more generous than a couple of years ago.

Virgin Money and Cynergy Bank offer the top rates at 1.31% although Virgin's Double Take E-Saver limits withdrawals to two in a year.

While Marcuswhich is part of Goldman Sachs, has a slightly lower rate at 1.30% (and scrapped its bonus rate for new customers), it allows unlimited withdrawals. Saga also offers 1.30% on its Easy Access Savings Account.

Handily, existing customers with can actually renew their bonus rate after one year to avoid their rate dropping.

To do so, you simply log in to your account, select 'review your savings' and then click on 'renew your bonus'.

Meanwhile, the Cynergy account, which requires you to be a customer of the bank to sign up, comes with a 0.56% bonus, which disappears after one year.

Notice accounts: get up to 1.6%

Investec offers the best notice account on the market with a rate of 1.60%, but you need a whopping £10,000 to open an account and have to wait 95 days to access your money.

Alternatively, Hampshire Trust Bank offers a slightly lower rate of 1.50% and requires a £1,000 deposit . You have to wait 95 days to access your money.

Manage all your savings in one place with the Raisin UK savings platform

Cash ISAs: earn up to 1.4%

While the PSA has effectively made all savings accounts tax-free, you should still consider using your tax-free ISA allowance (which is £20,000 for 2020/21).

That’s because any money you put into an ISA will stay tax-free long term, even if the interest you earn grows beyond the PSA limits.

With the PSA, any interest you earn beyond the £1,000/£500 limit is taxed at your marginal rate.

The best rate on an easy access Cash ISA is available from Paragon Bank offering a rate of 1.21%. You’ll need £1 to open the account.

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 Charter Savings Bank and Kent Reliance, which both offer 1.35%.

Paragon Bank is now at the top of the five-year Cash ISA best buy tables with a rate of 1.40%.

Fixed-rate bonds/Shariah bonds: earn up to 2%

The Bank of London and the Middle East offers one of the best one-year fixed rates on the market, with an expected profit rate of 1.60%; you'll need a minimum deposit of £1,000.

Not interested in a Shariah-compliant bank? Vanquis Bank Savings also offers a rate of 1.60%.

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 about earning airmiles here).

So, the fixed interest rate of 1.36% is essentially converted into airmiles after a year.

The Bank of London and the Middle East offers the best two-year fixed rate, with an expected profit rate of 1.75% (just above the current rate of inflation); the minimum deposit is £1,000.

Alternatively, Secure Trust Bank offers 1.68% on its two-year fixed-rate bond.

Gatehouse Bank tops the table for five-year bonds, offering an expected profit rate of 2%.

It used to be that the best rates of all await the most patient savers, but this no longer appears to be the case.

UBL UK will give you a rate of 1.95% on at least £2,000, but you won't be able to access your money for seven years.

It's a heck of a long time to lock your money away, 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).

As we mentioned at the start, the Nationwide account hasn't yet been cut to 2%, so we've included the rate as it currently stands.

Account

Type

Interest rate

Minimum deposit

Nationwide FlexDirect

Current account

5%* (one year only)

£1,000 per month (interest paid on first £2,500)*

Gatehouse Bank

Five-year fixed-rate bond

2%**

£1,000

UBL UK

seven-year fixed-rate bond

1.95%

£2,000

SecureTrust Bank

Three-year fixed-rate bond

1.81%

£1,000

Bank of London and the Middle East

Two-year fixed-rate bond

1.75%**

 £1,000

Bank of London and the Middle East

One-year fixed-rate bond

1.60%**

£1,000

Vanquis Bank Savings

One-year fixed-rate bond

1.60%

£1,000

Virgin Money

Instant access account***

1.31%

£1

Cynergy Bank

Instant access account****

1.31%

£1

Paragon Bank

Easy access Cash ISA

1.21%

£1

Paragon Bank

Five-year fixed-rate ISA

1.40%

£500

Metro Bank

Three-year fixed-rate ISA

1.30%

£1

Investec

95-day notice account

1.60%

£10,000

 Charter Savings Bank

Two-year fixed-rate ISA

1.46%

£5,000

Charter Savings Bank

One-year fixed rate ISA

1.35%

£5,000

Kent Reliance

One-year fixed rate ISA

1.35%

£1,000

M&S Bank

Regular savings account*****

2.75%

Can save between £25 and £250 a month, for a year

First Direct

Regular savings account*****

2.75%

Can save between £25 and £300 a month, up to £3,600 a year

HSBC

Regular savings account*****

2.75%

Can save between £25 and £250 a month, up to £3,000 a year

*Interest rate to fall to 2% for first £1,500 in account from 1 May 2020
**Anticipated profit rate (
read more here)
***Restricted to two withdrawals per year
****Only available to existing customers. Rate falls by 0.56% after one year.
*****Must have a linked current account

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.

If you are willing to take on some risk for a higher rate, you could visit our investment centre or have a look at the peer-to-peer tab in our savings tables (capital at risk).

Rates are correct at the time of publication; this article is regularly updated.

*This article contains affiliate links, which means we may receive a commission on any sales of products or services we write about. This article was written completely independently.

 

 

 

 

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