Savings interest rates remain low, thanks mainly to a combination of a low Bank of England base rate and cheap money available to banks and building societies via the Funding For Lending scheme.
Yet there are ways to get an inflation-beating return (currently over 2.7%, based on August's Consumer Prices Index) on your cash, even after tax.
Let’s have a look at the top rates across a number of areas. Some of the better options might surprise you.
Instant access savings accounts
Britannia's Select Access Saver is the top-paying account if you want to be able to access your money when you want; so long as you don't make more than four withdrawals in a year, it pays 1.75%. However, you can't open this account online.
The top online account is Coventry Building Society’s Online Saver. You can open this with just £1 and it pays 1.60%.
Notice savings accounts
The top notice account is currently the Islamic Bank of Britain's Sharia-compliant 120-Day Notice Account. As this account is operated in accordance with Sharia law, it doesn't pay interest; instead it has an anticipated profit rate of 1.81%. As the name suggests, you need to give 120 days' notice to make a withdrawal. You can open it with £500.
If you want a shorter notice period, Kent Reliance's 60-Day Notice pays 1.65% on a minimum of £1,000.
There are two important things to remember about regular savings accounts. The first is you can only deposit up to £250-£300 a month, so if you have more you'll need to dripfeed it in. The second is you only earn interest on the balance in the account, so even though you might deposit £3,000 over the course of a year, you won't earn interest on £3,000 until the final month.
If you want to earn 6% AER, then First Direct's Regular Saver is the account to head for. There's just one catch: you need to have a 1st current account. The top two non-restricted accounts – from Saffron Building Society and Kent Reliance – pay 4% but can only be opened in branches. Of the mainstream banks, Barclays is offering the top rate of 3.25%, although you'll also have to open it in branch if you're not already a Barclays current account customer.
Fixed rate savings accounts
For a one-year fix, Britannia is leading the way with a rate of 2.03%, which you can open with £1,000. However, you can only open it in a branch. If you want an account you can open, the next best option is the Post Office Online Bond paying 1.99% on a minimum of £500.
Over two years, the top rate is 2.32% from the Islamic Bank of Britain’s Sharia-compliant Fixed Term Deposit. As with the notice account, it offers an anticipated profit rate. You’ll need £1,000 to open the account.
Over the longer term, you’ll need more money to get a decent return, and it’s debatable whether locking your money away for is worth the small increase in interest.
Over five years, Leeds Building Society is paying 3.05%, which you can open with £100. If you want to lock your money away for a very long time, which you may well regret if rates rise, then Skipton Building Society's got a seven-year bond paying 3.50% on balances of £500 or more.
For tax-free savings, Tesco Bank is offering the top instant access cash ISA, with a rate of 2% on deposits of £1 or more.
If you can live with having to give some notice, then Bank of Cyprus UK's Cash ISA allows transfers in, pays 2% and you can withdraw money with 35 days' notice.
When it comes to fixed rates, no one-year rates beat Tesco's instant access. For two years, Britannia is paying 2.25% but you must deposit your entire year's allowance (£5,760). So for £1,000, Halifax's ISA Saver Fixed is your best bet at 2.10%.
Over three years, Skipton Building Society pays 2.30% on balances of £500 or more, while Nationwide is paying 2.40% over four years on a minimum deposit of £1. Meanwhile, Leeds Building Society is now offering 3.05% over five years, again from £1.
Of course, the beauty of an ISA is you can transfer past allowances to other ISAs if the rate drops.
A current account
Surprisingly, a current account trumps all the top savings accounts at the moment, albeit for smaller balances and a shorter length of time. Nationwide’s FlexDirect account pays 5% interest on balances up to £2,500 for the first 12 months. The only condition is you need to pay in at least £1,000 a month.
Peer-to-peer websites allow you to lend money to both other people and small businesses and potentially earn a greater reward for your risk.
However, your interest isn’t tax free and your money isn’t protected by the Financial Services Compensation Scheme.
Funding Circle, which only lends to businesses, says it is currently paying an interest rate of up to 5.8% on money lent.
Meanwhile, if you prefer to lend to other people, RateSetter’s five-year income account offers a fixed rate of 5.2%. And Zopa says it is paying an average of 4.7%.
How they compare
So let's take a look at how the different options really stack up against one another.
Gross interest rate
Net interest rate for basic rate taxpayer
Net interest rate for higher rate taxpayer
Five-year peer-to-peer savings
None for five years
5.00% (one year only)
|Zopa*||Five-year peer-to-peer savings||4.70%||3.76%||2.82%||£10||Unlimited||Unlimited |
|Skipton Building Society Seven-Year Fixed Rate Savings||Seven-year fixed rate savings bond||3.50%||2.80%||2.10%||£500||£10,000||None for seven years|
|Barclays Monthly Savings||Regular savings account||3.25%||2.60%||1.95%||£20 (monthly)||£3,000 (within a year)||None for a year|
Leeds Building Society Five-Year No Access ISA
Five-year fixed rate Cash ISA
Unlimited (past ISAs only)
None for five years
|Leeds Building Society Five-Year No Access Bond||Five-year fixed rate savings bond||3.05%||2.44%||1.83%||£100||£1,000,000||None for five years|
|Vanquis Bank High Yield||Three-year fixed rate savings bond||2.41%||1.93%||1.45%||£1,000||£250,000||None for three years|
|Nationwide Four-Year Fixed Rate ISA||Four-year fixed rate Cash ISA||2.40%||2.40%||2.40%||£1||Unlimited (past ISAs only)||None for four years|
|Islamic Bank of Britain Sharia-compliant Fixed Term Deposit**||Two-year fixed rate savings bond||2.32%||1.86%||1.39%||£1,000||Unlimited||None for two years|
|Skipton Building Society Three-Year Fixed Rate ISA||Three-year fixed rate Cash ISA||2.30%||2.30%||2.30%||£500||Unlimited (past ISAs only)||None for three years|
Halifax ISA Saver Fixed
Two-year fixed rate Cash ISA
Unlimited (past ISAs only)
None for two years
|Britannia One-Year Fixed Rate Bond||One-year fixed rate savings bond||2.03%||1.62%||1.22%||£1,000||£1,000,000||None for one year|
Tesco Instant Access Cash ISA
Easy access Cash ISA
|Bank of Cyprus UK Cash ISA||Notice Cash ISA||2.00%||2.00%||2.00%||£500||Unlimited (past ISAs only)||35 days' notice required|
Leeds BS Fixed Rate Bond
One-year fixed rate savings bond
None for one year
Islamic Bank of Britain Sharia-compliant 120-Day Notice Account**
Notice savings account
120 days' notice required
Britannia Select Access Saver***
Easy access savings account
Coventry BS Online Saver
Easy access savings account
*Not protected by the Financial Services Compensation Scheme
**Anticipated profit rate
***Only permitted maximum of four withdrawals a year or interest rate will be reduced
The account you go for will probably be determined by the amount you have to save, your attitude to risk and whether you want instant access to your money.
What's clear though is that if you want a better return on your money in the longer term, with a bit more risk in some cases, you're better off looking beyond traditional savings accounts right now.
Unfortunately, if you just want somewhere to put some money away in case of a rainy day, you're not going to be able to beat inflation unless you go for peer-to-peer savings. If you don't fancy that, you should still shop around for the best rate you can get.