Where to earn most interest on your cash

A new tax year traditionally means a host of new ISA products are launched as some people rush to maximise their tax-free allowance. There are also plenty of other new savings products on offer too.

Sadly, 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 2.8%, based on the Consumer Prices Index) on your cash, even after tax.

Let’s have a look at the top rates across a number of areas.

Instant access savings accounts

West Brom’s Direct Bonus account has topped the instant access savings table for a while now. It pays 2.05%, but the minimum deposit is a whopping £10,000.

Meanwhile, there are several accounts paying 2% – the pick of which is arguably Coventry Building Society’s Online Saver. You can open this with just £1 and manage the account online. Be aware though that the rate is boosted by a 0.40% bonus for the first year.

Notice savings accounts

The top notice account is currently United Bank UK’s 90-Day Notice Gold, paying 2.26%. As the name suggests, you have to give 90 days’ notice if you want to make a withdrawal. But you can open it with just £1.

Fixed rate savings accounts

Moving on to fixed rate accounts and the rates on these have improved since the start of the tax year. For a one-year fix, Leeds Building Society is leading the way with a rate of 2.45%, which you can open with £100.

Over two years, the top rate is 2.63% from the Islamic Bank of Britain’s Sharia-compliant Fixed Term Deposit. Note that, in accordance with Sharia law, that’s an anticipated profit rate, rather than an interest 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 is worth the small increase in interest.

Over three years, the top paying account is Agribank’s three-year fixed term deposit at 3.50%. However, this isn’t protected by the Financial Services Compensation Scheme, which safeguards the first £85,000 of your savings if a bank or building society goes bust. You’ll also need £10,000 to invest.

For a less risky investment, the next best option is Shawbrook Bank’s Three Year Fixed Rate Bond, paying 2.50%, with a minimum deposit of £5,000.

Over five years, Agribank is paying 3.60%, with the same caveats as before. Beyond that, FirstSave is paying 3.05% on a minimum of £1,000.

[Related link: Compare savings accounts]

Cash ISAs

For tax-free savings, Coventry Building Society is offering the best instant access Cash ISA, paying 2.60% including a bonus of 0.60% for the first year. The Poppy ISA also pays 0.1% of the average balance of its accounts to the Royal British Legion. You can open it with just £1. However, you can't transfer in any old ISAs.

If you do want to transfer old ISAs to an instant access option, the top rate is Cheshire Building Society's ISA Saver, paying 2.30%. That rate will plummet though as it includes a bonus of 1.80% until 31st October next year. You need £1,000 to open it.

When it comes to fixed rates, no one-year or two-year rates beat the Coventry's instant access, with the exception of Santander's 123 Exclusive Major ISA. This pays 3% over two years, plus an extra 0.1% if golfer Rory McIlroy wins a 'major' tournament over the two-year period. However, you need to be a Santander 123 current account (which costs £2 a month, although it does pay interest plus cashback on some of your household bills) or Santander 123 credit card customer (or become one) to be eligible.

Halifax’s three-year ISA pays 3% (and requires £500 to open), while its five-year version pays just 0.10% more at 3.10%. These both accept transfers in from old ISAs. But you might want to consider whether you want to lock your money away for so long for such a modest increase in interest.

Of course, the beauty of an ISA is you can transfer past allowances to other ISAs if your rate drops.

Current accounts

Surprisingly, a current account trumps all the top savings accounts at the moment, for smaller balances anyway. 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 savings

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 5.80% on money lent.

Zopa, which lends to individual borrowers, says it is paying an average of 5.1%. Meanwhile, RateSetter’s five-year income account offers a fixed rate of 5.8%, and its three-year account pays 4.40%.

[Related link: Take a look at interest rates on peer-to-peer savings accounts]

How they compare

So let's take a look at how the different options really stack up against one another.

Account	Type	Gross interest rate	Net interest rate for basic rate taxpayer	Net interest rate for higher rate taxpayer	Minimum deposit	Maximum deposit	Access
Funding Circle*	Peer-to-peer savings	5.80%	4.64%	3.48%	£20	Unlimited	Unlimited
RateSetter Income*	Five-year savings account	5.80%	4.64%	3.48%	£20	Unlimited	None for five years
Zopa*	Peer-to-peer savings	5.10%	4.08%	3.06%	£10	Unlimited	Unlimited
Nationwide FlexDirect	Current account	5.00% (one year only)	4.00%	3.00%	£1	£2,500	Unlimited
RateSetter Income*	Three-year savings account	4.40%	3.52%	2.64%	£20	Unlimited	None for three years
AgriBank Five-Year Fixed Term Deposit*	Five-year bond	3.60%	2.88%	2.16%	£10,000		None for five years
AgriBank Three-Year Fixed Term Deposit*	Three-year bond	3.50%	2.80%	2.10%	£10,000		None for three years
Halifax Five-Year ISA Saver Fixed	Five-year fixed rate Cash ISA	3.10%	3.10%	3.10%	£500	Unlimited (past ISAs only)	None for five years
Santander 123 Exclusive Major ISA**	Two-year fixed rate Cash ISA	3.00%	3.00%	3.00%	£1	Unlimited (past ISAs only)	None for two years
Halifax Three-Year ISA Saver Fixed	Three-year fixed rate Cash ISA	3.00%	3.00%	3.00%	£500	Unlimited (past ISAs only)	None for three years
Islamic Bank of Britain Sharia-compliant Fixed Term Deposit***	Two-year fixed rate savings bond	2.63%	2.10%	1.58%	£1,000	Unlimited	None for two years
Coventry BS Poppy ISA	Easy access Cash ISA	2.60%	2.60%	2.60%	£1	£5,760	Unlimited
Leeds BS Fixed Rate Bond	One-year fixed rate savings bond	2.45%	1.96%	1.47%	£100	£25,000	None for one year
Cheshire BS ISA Saver	Easy access Cash ISA	2.30%	2.30%	2.30%	£1,000	Unlimited (past ISAs only)	Unlimited
United Bank UK 90-Day Gold	Notice savings account	2.26%	1.81%	1.36%	£1	£1,000,000	90 days' notice required
West Brom BS Direct Bonus	Easy access savings account	2.05%	1.64%	1.23%	£10,000	£100,000	Unlimited
Coventry BS Online Saver	Easy access savings account	2.00%	1.60%	1.20%	£1	£250,000	Unlimited

*Not protected by the Financial Services Compensation Scheme

**Must be Santander 123 current account or 123 credit card customer to be eligible

***Anticipated profit rate

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.

[Related link: Want to invest your money instead? Take a look at stocks and shares ISAs]