UK households are on the lookout for every little way to make their money go a little further amid the cost of living crisis and savings accounts might help.
After years of low rates, high-yield savings accounts are having a moment as the Bank of England has kept interest rates at a 15-year high of 5.25%. While homeowners face higher mortgages, there is a silver lining in higher borrowing costs as consumers can now find UK savings accounts that offer more than inflation.
Inflation unexpectedly jumped to 4% in the 12 months to December 2023.
Savers should make sure they shop around to find the best deals and check what rate they are on – as they could still be sitting on a product that does not beat inflation.
The main factor you should be aware when choosing a savings account is the difference between an easy access or fixed term.
We will provide further detail below but, in a nutshell, easy access accounts allow you to access your money when you need it. Fixed term, as the name implies, are accounts where you can’t access your cash for the duration of the deal. They usually offer better rates but you must be comfortable with the idea of not touching your savings for a long period of time, usually between one to five years.
What are the best high-interest fixed rate accounts?
The best fixed rate account currently offers 5.17% and is available from Allica Bank. The six-month fixed term deal requires a minimum of £10,000 but you can invest up to £250,000. Withdrawals are not allowed for the duration of the deal.
The second-best fixed rate account offers 5.16% but comes with somewhat lower deposit requirements. The Shawbrook 1 Year Fixed Rate Bond Issue 101 requires a minimum of £1,000 that will be locked for 12 months. On maturity, meaning the end of the fixed period, customers will get 5.16% on balances. For example, if you put £10,000 with them today, in 12 months you would get your money back plus £516 as interest.
SmartSave offers the same 5.16% fixed rate savings account for one year. The minimum deposit is £10,000 but you can go as high as £85,000. Again, no withdrawals are allowed during those 12 months.
Online banks typically offer far higher rates than traditional brick-and-mortar branches, which translate to better returns, giving you a more efficient way to save and reach financial goals.
But if you prefer to go with a familiar name, the high street lenders have slightly lower offers but still above inflation.
Barclays (BARC.L) offers the highest rate among high street lenders, with a one-year fixed rate savings account that pays 4.65%. The requirements are also accessible, with a minimum of £500.
Metro Bank isn’t that far off with its 4.61% interest rate and similar conditions. One-year fixed term and a minimum of £500.
HSBC (HSBA.L) has a Fixed Rate Savings product that offers 4.35% for one year. However, the minimum deposit is £2,000 and you must have or open an HSBC current account or a different savings account to be eligible. Again, no withdrawals are permitted.
How do fixed-rate savings account work?
Unlike easy access savings, whose interest rates can vary, fixed rate accounts do as their name suggests. They'll 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.
However, you need to have your initial deposit for a fixed period, without making withdrawals. If you do touch your money, you forfeit any interest.
What are the best easy-access savings accounts?
Easy-access savings accounts are simple types of savings accounts that let you withdraw your money without notice
However, with that ease of access comes lower interest rates compared to fixed-rate accounts. 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.
Coventry Building Society currently has the highest paying easy access savings accounts offer on the market. It offers 5.15% which can be paid annually or monthly.
This account can be opened with just £1 but you can go as high as £250,000. However, you can only make three fee-free withdrawals a year. If you go over this limit, you will be charged 50 days' interest of amount withdrawn moving forward.
Cynergy Bank is a close second, with an easy access account that pays 5.1%, paid annually. You can only open it online with just £1.
After 12 months, the interest rate drops to 4%.
Leeds Building Society’s offer is somewhat similar. It pays 5.1% at maturity (2 March 2025) but requires a bit more money. To open the account, which you can only do online, a minimum of £1,000 is required.
There are even higher paying easy access accounts but they are not for new customers. Santander Edge Saver, for instance, offers 7% but you it is only for current account holders.
Skipton Building Society pays 5.5% but the deal is only available to mortgage holders or those who had a savings account with the lender before January.
What are the best notice savings accounts?
Can’t decide on whether you want to put your money away and not touch it for a long period of time or keep it accessible at all times? Then 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.
It is ideal for those who will know when they might need their cash but you don’t want the temptation of dipping into it before
You will 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.
Vanquis offers 5.4% on a 90-day notice period. This means that as long as you give the lender a three-month advance warning, you can access your money with zero penalties. You need £1000 to open this account online and interest is paid either monthly or annually.
The Bank of London and the Middle East (BLME) has a 5.35% offer also on a 90-day notice period. It can only be opened online but you need at least £10,000. Interest is paid quarterly.
West Brom Building Society gives you 5.25% on a 60-day notice period. You only need £1 to open (online only) with interest being paid monthly or annually.
Interest rates with notice accounts are variable, which means it could go up or down over time.
What are the best regular savings accounts?
For those looking to make the most of their cash savings, regular savings accounts offer up to 7% returns
Most regular savings accounts require you to put money away each month with interest paid yearly.
For existing customers, First Direct offers 7% for a year but allows a maximum monthly deposit of £300. You are not allowed to skip months, with a minimum of £25 required to be deposited in the account every month.
You are not allowed any withdrawals without a penalty and if you close the account before the 12 months are over, interest drops to 2%.
Skipton BS has a 7% deal but only for existing customers. Fixed for one year, you can save up to £250 per month and can skip months with to penalties. You are not allowed to make any withdrawals but there are no penalties if you decide to close early.
Nationwide used to have a market-leading 8% offer but that has now come down to 6.5%. Nationwide’s deal is a regular savings account, available exclusively to its current account customers.
Every deal mentioned here is covered by the Financial Services Compensation Scheme (FSCS), so you are protected up to £85,000.
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