UK households are always looking for ways to make their money go further amid the cost of living crisis, and savings accounts can help.
After years of low rates, high-yield savings accounts are still having a moment even after the Bank of England (BoE) cut interest rates to 4.5% in February. While homeowners face lofty mortgage rates, there is a silver lining in higher borrowing costs, and consumers can find UK savings accounts offering rates above inflation.
However, you should move quickly as several providers are ditching their best offers ahead of the BoE's interest rate decision next week.
Nearly 40 providers have either reduced their rates or withdrawn products altogether, following the BoE’s quarter-point cut to 4.5%.
Despite these cuts, a number of savings rates still remain above 4.5%. However, experts urge savers to shop around for the best deals and review their accounts regularly, as many may still be sitting on products that fail to beat inflation.
Matthew Ford, CEO and co-founder of Sidekick, said: “The UK's declining base rate coupled with the fact that the household savings rate in the EU sits at a three-year high has created a perfect storm for savers. The appetite to save is there, but it’s marred by widespread uncertainty around how to manage their cash.
“When faced with cuts, it’s vital to regularly review savings accounts. Check the interest rate that you’re getting on your savings and schedule regular reviews of the market using price comparison websites and best buy tables."
Inflation dipped to 2.5% in December, according to the Office for National Statistics (ONS), after two months of rises as hotel prices dropped and tobacco costs eased.
Savers should shop around to find the best deals and check what rate they are on. Providers have already started to lower rates as interest rates fall, so consumers need to check if their money is well-placed for higher returns.
Alice Haine, personal finance expert at Bestinvest, said: “Locking in the best savings deal possible, while rates remain higher, is the best inflation-beating strategy, particularly for those with cash languishing in an account delivering dismal returns.
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“For those with sizeable sums in a savings account, that puts them at risk of paying tax on the interest they earn, so a more tax-efficient strategy that takes advantage of the benefits that come with individual savings accounts (ISAs) and pensions is key at a time when frozen or cut personal tax thresholds are dragging increasing numbers of people into paying higher rates of tax as their pay increases.”
The main factor you should be aware of when choosing a savings account is the difference between easy-access and fixed-term.
Easy-access accounts allow you to access your money when you need it. Fixed-term means you can’t access your cash for the duration of the deal. They usually offer better rates, but you must be comfortable with not touching your savings for a long period, usually between one and five years.
Secure Trust offers 4.59% for 12 months. The key condition is that you need at least £1,000 to open the account, with deposits capped at £1,000,000.
The Access Bank pays 4.58% for one year, with interest paid on maturity, meaning at the end of the 12 months. You can open the account with £5,000 and invest up to £500,000.
Close Brothers (CBG.L) also offers 4.58% for one year. The key condition is you need at least £10,000 to open the account and can invest up to £2m.
Online banks typically offer higher rates than traditional bricks-and-mortar branches, which translate into better returns, giving you a more efficient way to save and reach financial goals.
Digital-only banking use has grown for the second year in a row, according to research from personal finance comparison site Finder, with superior interest rates the biggest factor driving adoption.
If you prefer to go with a familiar name, the high-street lenders have slightly lower offers, but are still above inflation.
Tesco (TSCO.L) Bank offers the highest rate among high-street lenders, with a one-year fixed-rate savings account that pays 4.45%, with the minimum balance required being £2,000. However, you can invest up to £5m.
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Nationwide (NBS.L) has a fixed-rate savings product offering 4.15% for one year. The minimum deposit is just £1 and interest will be paid on the anniversary of the date you opened your account (regardless of when the account was funded), at the end of the term, and on the day your account closes.
Unlike easy-access products, where interest rates can vary, fixed-rate accounts earn a set rate of interest for the period you choose, whether that's six months or several years. Those are the most common deals, but some offers go up to 10 years and over.
You must leave your initial deposit for a fixed period without making withdrawals. If you touch your money, you forfeit any interest.
Easy-access savings accounts let you withdraw your money without notice. With that ease of access come lower interest rates, but they are a good option for those who think they might need their money in a hurry.
Be aware that rates on these accounts are variable, which means they can go up or down. You will be notified of any change ahead of time.
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Monument pays 4.75% but you need at least £25,000 to open the account, with deposits limited to £2m. You are allowed a maximum of three withdrawals per year.
Vida Savings has a 4.63% deal that can be accessed with £10. You can invest up to £85,000 and you get up to 4 withdrawals every 12 months without affecting your rate.
GB Bank has a 4.60% deal available that comes with unlimited withdrawals, meaning you can access your money whenever you need it, without restriction or loss of interest.
There are even higher-paying easy-access accounts, but they are not for new customers. Santander's (BNC.L) Edge Saver, for instance, offers 6%, but is only available to current account holders.
Can’t decide on whether you want to put your money away and not touch it for a long time or keep it accessible at all times? Maybe you should consider a notice savings account.
Notice savings accounts require you to give notice to your savings provider before you can withdraw your funds.
These are ideal for those who know when they might need their cash but don’t want to face the temptation of dipping into it at any time.
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You need to give the bank or building society a set advance warning before you can withdraw your money — usually between 30 and 120 days.
Santander via Prosper has a 185-day product that pays 4.83%. You’ll need at least £20,000 to open it and can deposit up to £250,000.
Oxbury has made a push in to the notice accounts arena, with top rates across 90, 60 and 35 days. The conditions are the same across all three offers: you need at least £1,000 to open the account and can invest up to £500,000. It pays 4.78%, 4.76% and 4.65% respectively.
Interest rates with notice accounts are variable, which means they could go up or down over time.
For those looking to make the most of their cash savings, regular savings accounts offer up to 8% returns.
Most regular savings accounts require you to put money away each month with interest paid yearly. It is not uncommon for the offer to be available only to current customers.
Principality offers 7.5% in a six-month regular saver account, after dropping its 8% deal. You open an account and pay in up to £200 each month. Interest is calculated on the money in the account each day and paid six months after opening.
The Co-operative Bank has a 7% deal for existing customers. Fixed for one year, you can save up to £250 per month and can skip months without penalties.
First Direct also has a deal that pays 7%. You can open this account with £25, which is the same amount required to go into it every month. The maximum per month is capped at £300.
Every deal mentioned here is covered by the Financial Services Compensation Scheme, so you are protected up to £85,000 or double that if it’s a joint account.
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