Dozens of high street banks and building societies have slashed rates on savings products, in a swift response to the Bank of England’s (BoE) decision to lower the base rate last month.
Nearly 40 providers have either reduced their rates or withdrawn products altogether, following the BoE’s quarter-point cut to 4.5%.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.
Data released on Monday by the BoE showed that household deposits with banks and building societies increased by £8.4bn in January, following net deposits of £4.7bn in December.
Of that amount, £5.4bn came from additional deposits into interest-bearing sight accounts, which refers to those where the entire balance is accessible without penalty, either by demand or by close of business on the day following that on which the deposit was made, and where interest is payable.
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. As today’s cut proves, the market is very dynamic and competitive."
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Understanding the key difference between easy-access and fixed-term accounts is vital. Easy-access accounts offer the flexibility of immediate access to funds, while fixed-term accounts require savers to commit their money for the duration of the deal. The latter generally provides higher rates, but liquidity is limited.
Consumers could also go with a cash ISA, a savings account that allows you to earn interest on your money without paying tax on it. It's a type of individual savings account (ISA). Currently, Trading 212 has a 4.77% offer with a promo code.
However, newbies to Chip who open its cash ISA can get 5% AER variable interest for six months.
Ford said: “Fixed-term accounts are a brilliant cash management solution that makes your money work hard for you in these conditions. The range of different terms available also means there are options to suit different types of savers based on their goals.
"These accounts allow you to lock in a fixed interest rate and protect against future rate drops. Ensure you plan around your liquidity needs, as these savings are locked up for the term."
Inflation jumped to 3% in January, according to the Office for National Statistics (ONS) but savers should still aim to achieve returns that outpace inflation.
As the interest rate landscape continues to shift, savers must remain vigilant to ensure their money is positioned for the best returns.
The Access Bank pays 4.58% for one year, with interest being paid on maturity, meaning at the end of said 12 months. You can open the account with £5,000 and you can 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 you can invest up to £2m.
The Family Building Society offers 4.57% with a one-year account for which you’ll need £10,000 to open. You can invest up to £250,000 in this account.
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 as 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.
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Tesco (TSCO.L) Bank offers one of 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.
Nationwide (NBS.L) has a fixed-rate savings product offering 4% 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 one, two, three or even five 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.
Principality has a 4.70% deal that pays interest annually, and you only need £1 to open the account, which is done online. You can invest up to £1,000,000. You are allowed three withdrawals per year without any penalties and after 12 months, £1,000 should return £1,047.00.
The West Brom has a 4.65% deal that can be accessed with £1 and you can invest up to £1,000,000. You can take money out of your account up to four times a year, after which the annual interest rate goes down to 2.4%.
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 period 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.
Vida Savings has a 95-day product that pays 4.85%. You’ll need only £50 to open, with deposits capped at £85,000. Interest is paid monthly or annually.
Santander (BNC.L) 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.
Monument has a 60-day notice deal that pays 4.75% that requires £25,000 to open, but you can deposit up to £2,000,000.
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 8% in a six-month regular saver account. 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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