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Best savings accounts and ISAs to start 2014
Savings rates have been in the doldrums for some quite some time now, due to a combination of factors, but there are signs that this could be a happier new year.
For one thing, the Funding for Lending scheme is being refocused away from mortgage borrowers and onto small businesses. This has been a major contributor to driving savings rates down, as banks and building societies took advantage of cheap money from the Bank of England, meaning they didn’t need savings deposits.
Already we’re seeing rates rising, albeit mostly on longer-term fixed rate accounts.
In the meantime, it’s worth considering a couple of less obvious places for your savings, in addition to looking at the best high street savings accounts and ISAs.
Current accounts
The first is current accounts. Several current accounts are paying far higher rates than the top instant access savings account at 1.60%, as the table below illustrates.
Account | Interest rate AER | Notes |
5.00% | Rate for first 12 months you hold account on balance of up to £2,500 | |
Clydesdale Bank Current Account Direct | 4.00% | Rate until March 2015 on balance of up to £3,000 |
Yorkshire Bank Current Account Direct | 4.00% | Rate until March 2015 on balance of up to £3,000 |
3.00% | Rate on balances of £3,000-£20,000 (lower rates apply to smaller balances). Annual fee of £24 but account offers cashback on some household bills paid by direct debit | |
Lloyds Bank Classic Account with Vantage | 3.00% | Rates on balances of £3,000-£5,000 (lower rates apply to smaller balances) |
Bank of Scotland Classic Account with Vantage | 3.00% | Rates on balances of £3,000-£5,000 (lower rates apply to smaller balances) |
TSB Classic Account with Enhance | 3.00% | Rates on balances of £3,000-£5,000 (lower rates apply to smaller balances) |
Many of these accounts require minimum monthly funding in order to earn the top interest rates, but a few direct debits should easily solve that.
[Compare high-interest current accounts]
Peer-to-peer lending
A fast-growing area, peer-to-peer websites allow you to lend your money to other individual borrowers or small businesses. There is an element of risk, as these sites aren't covered by the Financial Services Compensation Scheme, which covers savings of up to £85,000 with financial institutions.
However, the rewards are generally far greater than those offered by high street savings accounts, even if you lock your money away.
For example, FundingCircle, which facilitates lending between individuals and small businesses, is advertising an average return of 5.70%. Meanwhile, RateSetter, which deals with individuals, is returning an average of 5.4% on its five-year deposits.
[Compare returns from peer-to-peer companies]
High street savings accounts
The returns on high street savings accounts aren't great at the moment, but if that's where you want to put your money then here are the best rates, starting with instant access savings accounts.
Account | Interest rate (gross AER) | Minimum deposit | Withdrawal limits |
Coventry BS Online Saver | 1.60% | £1 | Four penalty-free withdrawals a year |
Investec E-asy Access Account | 1.55% | £25,000 | None |
Virgin Money Easy Access E-Saver | 1.51% | £1 | None |
The good news with the top-paying instant access accounts at the moment is that none of them have a bonus artificially boosting their rate. But you should still keep an eye on your rate and what else comes onto the market.
Now here are the top fixed rate accounts across different time periods.
Account | Interest rate (gross AER) | Minimum deposit | Access |
Shawbrook Bank One-Year Fixed Rate Bond | 1.95% | £5,000 | Online, post |
Islamic Bank of Britain Sharia-Compliant 18-Month Fixed Term Deposit* | 2.02% | £1,000 | Online, branch, phone, post |
Shawbrook Bank Two-Year Fixed Rate Bond | 2.40% | £5,000 | Online, post |
Bank of London and the Middle East Sharia-Compliant Two-Year Premier Deposit Account* | 2.50% | £25,000 | Online |
Secure Trust Bank Three-Year Fixed Rate Bond | 2.71% | £1,000 | Online |
2.91% | £1,000 | Online | |
FirstSave Five-Year Fixed-Rate Bond | 3.25% | £1,000 | Online |
Secure Trust Bank Seven-Year Fixed Rate Bond | 3.52% | £1,000 | Online |
*Anticipated profit rate
If you want to dripfeed your money in over a period of time, here are the top regular savings rates that don't require you to have a specific current account.
Account | Interest rate (gross AER) | Minimum monthly deposit | Maximum monthly deposit |
West Bromwich BS Regular Saver | 3.30% | £10 | £100 |
Nottingham BS Regular Saver | 3.10% | £10 | £250 |
Cambridge BS Regular Savings Bond | 3.05% | £20 | £250 |
Leeds BS Regular Saver | 3.05% | £50 | £250 |
And, finally, here are the top notice accounts.
Account | Interest rate (gross AER) | Minimum monthly deposit | Notice required for withdrawal |
SecureTrust Bank 120-Day Notice | 1.86% | £1,000 | 120 days |
Islamic Bank of Britain Sharia-Compliant 120-Day Notice* | 1.81% | £250 | 120 days |
*Anticipated profit rate
Cash ISAs
Instant access Cash ISA rates are better than those on instant access savings accounts at the moment, so you should think about using your 2013/14 allowance (£5,670) if you haven't already.
Account | Interest Rate (AER) | Minimum deposit | Bonus | Notes |
Post Office Premier Cash ISA | 1.80% | £100 | 0.9% bonus for 18 months | Transfers and new subscriptions. |
Virgin Money Easy Access Cash eISA | 1.75% | £1 | None | Transfers and new subscriptions. |
Britannia Select Access Cash ISA | 1.75% | £500 | None | Transfers and new subscriptions. |
Stafford Railway Cash ISA | 1.75% | £1 | None | New subscriptions only. |
Of course, you could opt to lock your money away in a fixed rate ISA for a better return.
Account | Interest rate (AER) | Minimum deposit | Length of fixed rate | Notes |
1.85% | £1,000 | One year | Transfers and new subscriptions. | |
Bath BS Fixed Rate ISA | 1.90% | £1 | One year | New subscriptions only. |
Post Office Fixed Rate Cash ISA | 2.25% | £500 | Two years | Transfers and new subscriptions. |
Virgin Money Fixed Rate Cash E-ISA | 2.40% | £1 | Three years (fixed until 24th January 2017) | Transfers and new subscriptions. |
Coventry BS Fixed-Rate ISA | 2.75% | £5,760 | Three and a half years (fixed until 31st May 2017) | New subscriptions only. |
Principality BS Five-Year Fixed Rate Cash ISA | 3.05% | £500 | Five years | Transfers and new subscriptions. |
The long-term gamble
While the Bank of England's Base Rate is still at a record low of 0.5%, there are signs that it will potentially shift next year, if not this year. Therefore, locking your money away for a long time is a gamble. However, if you need the income now, you might consider it a gamble worth taking.
