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 having a moment even as the Bank of England (BoE) cut interest rates to 4.75%. While homeowners face high mortgages, there is a silver lining in higher borrowing costs and consumers can find UK savings accounts offering higher than inflation rates.
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.
“For those with sizeable sums in a savings account, that puts them at risk of paying tax on the interest they earn, 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.
The best fixed-rate account offers 4.9% for three months and is available from Sainsbury’s Bank via the Proper platform. You need at least £20,000 to open the account and you can invest up to £250,000.
There is a 4.85% deal is available from Cynergy Bank. This fixed-term personal savings account requires a minimum of £1,000 to be locked for six months. You can invest up to £1,000,000. Interest will be paid at maturity, meaning at the end of the six months.
Oxbury Bank has a three-month deal that pays 4.8% and you need at least £1,000 to open the account. You can only open it online and interest is paid at maturity. The maximum you can invest is £500,000.
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.
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 4.30%, with the minimum balance required being £2,000.
Read more: Best UK mortgage deals of the week
Nationwide (NBS.L) has a fixed-rate savings product offering 4% for one year. The minimum deposit is just £1 and you must be registered with Nationwide’s online bank.
Unlike easy-access savings, 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 comes lower interest rates, but they are a good option for those who think they might need their money in a hurry.
Read more: Best credit card deals of the week
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.
Principality has a 4.85% offer and you only need £1 to open the account. You are limited to three withdrawals every year and interest is paid annually.
Atom Bank has a 4.85% deal that pays interest monthly or annually, and there is no minimum to open the account, which is done via your mobile. You can invest up to £100,000. For instance, if you invest £10,000 with them you should expect to get £485.49 each year.
Monument offers an account pays 4.81% and you need £25,000 to open. Interest is paid monthly and you can open the account online. There is no limit to the number of withdrawals.
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 it is only for 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 the temptation of dipping into it at any time.
You need to give the bank or building society a set amount of advance warning before you can withdraw your money — usually between 30 and 120 days.
Santander via Prosper has a 365-day offer that pays 5.23%, the top offer on the market. You’ll need at least £20,000 to open it and can deposit up to £250,000.
Market Harborough BS has a 195-day notice account that pays 5.10%. You need at least £10,000 to open, which can be done online or by email.
StreamBank has a 90-day notice account that comes in at 5.05%. Interest is paid monthly into the account and you can invest anything between £1,000 and £100,000.
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 over 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.
Read more: Global chip stocks to consider as investments beyond Nvidia
The Co-op 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 and with £25, which is the same amount required every month to go into it. 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 if it’s a joint account.
Download the Yahoo Finance app, available for Apple and Android.
