Savers have had it better this year than in recent memory, with soaring interest rates making cash more attractive than it’s been since the global financial crisis and the average easy-access account going from 1.55% a year ago to above 4% today.
Below, we highlight which savings accounts are currently paying the most interest, but there are a few considerations to make beyond rates before splashing all your cash into a savings account.
Firstly, tax. AJ Bell head of personal finance Laura Suter noted how the biggest winner of this rise in savings rates hasn’t been the saver but the government, raking in far more tax than it expected.
“Last tax year it took in £3.4bn in tax on savings – almost £2bn more than the previous year. Savers who are benefitting from this rise in savings rates need to seriously consider whether a shift into an ISA is a good option, in order to protect their money from the taxman,” she said.
“But there is a sting in the tail here: ISA cash rates are often lower than non-ISA accounts. Savers will need to do their sums to work out whether it’s worth picking a higher-paying non-ISA account and paying tax on their savings interest, or putting it in an ISA and accepting a lower rate. It will depend on the size of their savings but also their income tax band and so how much tax they are paying on their savings.”
Secondly, savings are unlikely to beat inflation in the long term, as highlighted by Myron Jobson, senior personal finance analyst at interactive investor: “This reprieve in cash savings rates has been drowned out by the stubborn persistence of high inflation, with the real value of savings remaining in the doldrums.
“Those who can afford to put money away for five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.”
Alice Guy, interactive investor’s head of pensions and savings, seconded him: “Cash saving lags far behind investing in terms of building long-term wealth and saving for retirement.”
However, savings are “great for the short term and may be the best option for a rainy-day fund,” she said.
Starting with instant access accounts and a lump sum of £10,000, the best provider by rate is Chip, which offers 4.21% for an account that can be opened via mobile, Moneyfacts data shows.
Head online to open GB Bank Raisin UK’s easy access account for a variable 4.15% paid monthly or the Family Building Society’s Online Saver, which will pay your 3.95% yearly.
Paragon, Post Office Money, RCI Bank UK and Aldermore, Close Brothers Savings and Investec offer similar rates, ranging from 3.82% to 3.91%.
Savers who are happy to give three months' notice will see their money go a little bit further with the 90-day notice accounts by Investec, StreamBank and the Bank of London and The Middle East, which pay 4.5%, 4.6% and 5.09%, respectively, all of which you can open and manage online.
Even better returns are available via fixed-rate accounts.
Currently, the best six-month fixed-term deposit is by Monument Bank, whose six-month savings account will accrue 5.15%; with a nine-month notice, Al Rayan Bank (available via Raisin UK) pays 5.11%.
Locking up money for a whole year opens up further opportunities with a number of providers, with rates starting at 5.58% with Kent Reliance (the only accounts of the list that can be opened in branch) and stretching all the way up to 5.8% with the Habib Bank Zurich plc’s fixed rate eDeposit. Just below this are OakNorth Bank and Allica Bank, respectively at 5.76% and 5.75%.
Currently, a longer-term deposit won’t yield more than this. For higher rates, savers have to look at regular savings accounts, but these will have a maximum monthly deposit.
First Direct’s 12-month regular saver is the best payer, giving savers 7% on a maximum monthly deposit of £300.
The best ISA account is UBL UK’s 1-year fixed-rate cash ISA, which pays 5% and can be opened online, in branch or via mail.