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Where to earn most interest on your money
Looking to earn some interest on your cash, but don't want too much risk?
Sadly, savings interest rates still 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. So it's well worth looking beyond high street savings accounts to the likes of current accounts and peer-to-peer websites.
Let's look at all of these and more to see what rates are on offer right now.
Instant access savings accounts
No instant access account comes close to beating inflation, currently 2%, and indeed rates on this type of account continue to drop.
Currently the best you can get on your cash is 1.50% from Britannia's Select Access Saver, although there is a catch in that you're limited to four withdrawals a year. You can open it with £500. For truly unlimited withdrawals, you're looking at 1.40% from either Earl Shilton Building Society (minimum deposit: £100) or Coventry Building Society (minimum deposit: £500).
Cash ISAs
With savings account rates continuing to fall, if you haven't used your tax-free Cash ISA allowance, this arguably should be the first place you turn.
If you want instant access then Stafford Railway Building Society and Nationwide are paying the top rate of 1.75%. However, you need to be a Nationwide current account customer to take advantage of its Flexclusive ISA.
If you can cope with giving 120 days’ notice to get your cash, then you can get 1.81% from the Islamic Bank of Britain. Note that this is a Sharia-compliant account so the rate is an anticipated profit rate rather than an interest rate.
Moving onto fixed rates, and there's 1.90% on offer from Leeds Building Society with a deposit of just £1 if you lock your money away for a year. You can also access up to 25% of your money early.
You can get 2% from Halifax on an 18-month fixed rate with at least £500. Halifax also tops the two-year table with 2.05% on £500+. Although if you're a Santander 123 current account, 123 credit card or Select customer, you can take advantage of a market-leading 2.30% rate over two years.
Halifax will pay 2.25%, again on deposits over £500. However, you can get a three-and-a-half-year rate of 2.75% from Coventry Building Society so long as you put your entire year’s allowance of £5,760 in it.
Skipton Building Society has a five-year fixed ISA paying 3% on balances of £500 or more.
Notice savings accounts
By giving up access to your cash for 120 days you can get a rate of 1.81% from the Islamic Bank of Britain. You can open the account with £250. This is a Sharia-compliant account and so, in line with Sharia law, it pays an anticipated profit rate rather than an interest rate.
Fixed rate savings accounts
If you can afford to lock your cash up for a year, the best rate on offer is 1.90% from FirstSave and the Islamic Bank of Britain with a minimum deposit of £1,000 apiece. As the latter is another Sharia-compliant account, the rate is an anticipated profit rate.
Over 18 months there’s a tiny improvement on the rate – you can earn 2.02%, again from the Islamic Bank of Britain, with £1,000 or more.
For a two-year fixed rate, if you have £25,000 or more, you can earn 2.50% from the Bank of London and the Middle East via its Sharia-compliant account. FirstSave is paying 2.35% on smaller balances of £1,000 or more.
Over a three-year term you can earn 2.70% with £1,000 or more courtesy of ICICI Bank.
Over four years you can get 2.85% from Shawbrook Bank, with a minimum deposit of £5,000, while over five years you can earn 3.25% from FirstSave, providing you have at least £1,000. If you’re happy to lock your cash up for even longer then FirstSave (minimum deposit of £1,000) offers 3.50% but you'll need to wave goodbye to your cash for seven years!
Current accounts
A current account continues to trump 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.
However, TSB is set to launch a new current account called Plus at the end of March. This is going to pay 5% permanently on balances of up to £2,000, providing you credit the account with £500 a month. And you can have two accounts per person.
Meanwhile, Clydesdale Bank and Yorkshire Bank both offer the Current Account Direct, which pays 4% on balances up to £3,000 until the end of March 2015. Again, you need to deposit a minimum of £1,000 a month into the account.
If you don't want to move your money around, Santander’s 123 account pays 1% on balances over £1,000, 2% on balances over £2,000 and 3% on balances from £3,000 to £20,000. You need to pay in £500 a month, and set up at least two Direct Debits. There's also a £2 a month fee on the account but you can earn cashback on some of your direct debits for household bills.
And Bank of Scotland's Classic Account with Vantage, Lloyds Bank's Classic Account with Vantage and TSB's Classic Account with Enhance both pay 3% on balances of between £3,000 and £5,000 so long as you pay in £1,000 a month. You can have up to three of each account too.
Peer-to-peer savings
Peer-to-peer websites allow you to lend money to other people 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, which is where the risk comes in.
RateSetter’s five-year income account offers a rate of 5.70% over five years, with new entrant Lending Works offering 5% over the same time period. Meanwhile, Zopa is currently guaranteeing a rate of 5% over five years after fees.
You could also look at the likes of: Funding Circle, which only lends to businesses; short-term lending via pan-European lender TrustBuddy; commercial property lender Relendex; and Wellesley & Co, which offers bridging and development loans secured on property.
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 |
Five-year peer-to-peer savings | 5.70% | 4.56% | 3.42% | £20 | |
Current account | 5.00% (one year only) | 4.00% | 3.00% | £1 (max: £2,500) | |
TSB Plus Account (launching 31st March) | Current account | 5.00% | 4.00% | 3.00% | £1 (max: £2,000) |
Five-year peer-to-peer savings | 5.00% (guaranteed rate) | 4.00% | 3.00% | £10 | |
Lending Works Five Year* | Five-year peer-to-peer savings | 5.00% | 4.00% | 3.00% | £10 |
Clydesdale Bank Current Account Direct | Current account | 4.00% (until March 2015) | 3.20% | 2.40% | £1 (max: £3,000) |
Yorkshire Bank Current Account Direct | Current account | 4.00% (until March 2015) | 3.20% | 2.40% | £1 (max: £3,000) |
FirstSave Fixed Rate Bond | Seven-year fixed rate bond | 3.50% | 2.80% | 2.10% | £1,000 |
FirstSave Fixed Rate Bond | Five-year fixed rate bond | 3.25% | 2.60% | 1.95% | £1,000 |
Skipton BS Fixed Rate ISA | Five-year fixed rate Cash ISA | 3.00% | 3.00% | 3.00% | £500 |
Current account | 3.00% | 2.40% | 1.80% | £3,000 (max: £2,000) | |
Bank of Scotland Classic Account with Vantage | Current account | 3.00% | 2.40% | 1.80% | £3,000 (max: £5,000) |
Lloyds Bank Classic Account with Vantage | Current account | 3.00% | 2.40% | 1.80% | £3,000 (max: £5,000) |
TSB Classic Account with Enhance | Current account | 3.00% | 2.40% | 1.80% | £3,000 (max: £5,000) |
Shawbrook Bank Four-Year Fixed | Four-year fixed rate bond | 2.85% | 2.28% | 1.71% | £5,000 |
Coventry BS Fixed Rate ISA | Three-and-a-half-year fixed rate Cash ISA | 2.75% | 2.75% | 2.75% | £5,760 |
ICICI HiSAVE Fixed Rate Account | Three-year fixed rate bond | 2.70% | 2.16% | 1.62% | £1,000 |
Bank of London and the Middle East Sharia-compliant Fixed Term Deposit** | Two-year fixed rate bond | 2.50% | 2.00% | 1.50% | £25,000 |
Halifax ISA Saver Fixed | Three-year fixed rate Cash ISA | 2.25% | 2.25% | 2.25% | £500 |
Halifax ISA Saver Fixed | Two-year fixed rate Cash ISA | 2.05% | 2.05% | 2.05% | £500 |
Islamic Bank of Britain Sharia-Compliant Fixed Term Deposit** | 18-month fixed rate bond | 2.02% | 1.62% | 1.21% | £1,000 |
Halifax ISA Saver Fixed | 18-month fixed rate Cash ISA | 2.00% | 2.00% | 2.00% | £500 |
Leeds BS Fixed Rate Cash ISA | One-year fixed rate Cash ISA | 1.90% | 1.90% | 1.90% | £1 |
FirstSave Fixed Rate Bond/Islamic Bank of Britain Sharia-Compliant Fixed Term Deposit** | One-year fixed rate bond | 1.90% | 1.52% | 1.14% | £1,000 |
Islamic Bank of Britain Sharia-Compliant 120-Day Notice ISA** | Notice ISA | 1.81% | 1.81% | 1.81% | £250 |
Islamic Bank of Britain Sharia-Compliant 120-Day Notice Account** | Notice savings account | 1.81% | 1.45% | 1.09% | £250 |
Stafford Railway Building Society | Instant access ISA | 1.75% | 1.75% | 1.75% | £1 |
Britannia Select Access Saver*** | Instant access savings account | 1.50% | 1.20% | 0.90% | £500 |
*Not protected by the Financial Services Compensation Scheme
**Anticipated profit rate
***Withdrawal limits apply
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.
