UK households are always looking for ways to make their money go further amid the cost of living crisis and savings accounts can help.
After years of low rates, high-yield savings accounts are having a moment as the Bank of England has kept interest rates on hold at 5%. While homeowners face high mortgages, there is a silver lining in higher borrowing costs and consumers can find UK savings accounts offering higher than inflation rates.
UK inflation fell to 1.7% in the year to September, the lowest rate since April 2021, adding pressure for the BoE to cut rates. So now is the time to lock a good deal before rates come down.
Savers should 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. Providers might also start to lower rates as interest rates fall, so consumers need to check if their money is well-placed for higher returns.
Alice Haine, personal finance expert at Bestinvest, said: “Easing inflation has varied implications for savers. On the one hand more savers will achieve a real return on their savings, but on the other savings rates have already started to decline following the base rate cut at the start of last month. Deals above the 5% mark are becoming rarer and another interest rate cut would dampen savings rates even further.
“For now, the best savings rates are continuing to outstrip inflation, giving savers who hunted out the top deals a healthy real return on their nest eggs. Locking in a top rate now before the best deals disappear could be a sensible strategy for those with cash languishing in an account delivering dismal returns to ensure their money is working as hard as possible."
For those with money in easy-access accounts, switching to a fixed-rate account could be a prudent move to preserve returns.
The main factor you should be aware of when choosing a savings account is the difference between easy-access and fixed-term.
Easy-access accounts allow you to access your money when you need it. Fixed-term means you can’t access your cash for the duration of the deal. They usually offer better rates, but you must be comfortable with not touching your savings for a long period, usually between one and five years.
What are the best high-interest fixed-rate accounts?
The best fixed-rate account offers 5% and is available from the Union Bank of India (UK).
This fixed-term personal savings account requires a minimum of ￡1,000 to be locked for one year. You can invest up to ￡1,000,000. Interest will be paid at maturity, meaning at the end of the 12 months. Atom Bank also has a 5% deal but for only three months.
GB Bank has a six-month deal that pays 4.91% via the Prosper platform, but you need at least $20,000 to open the account. You can only open it via mobile banking and interest is paid at maturity.
Beehive Money has a six-month deal that pays 4.81%, where you can invest anywhere from ￡500 to ￡250,000. For example, if you put ￡1000 with them, at the end of the deal you’ll have 1,027.41.
Online banks typically offer higher rates than traditional bricks-and-mortar branches, which translate into better returns, giving you a more efficient way to save and reach financial goals.
If you prefer to go with a familiar name, the high-street lenders have slightly lower offers, but are still above inflation.
Tesco (TSCO.L) Bank offers the highest rate among high-street lenders, with a one-year fixed-rate savings account that pays 4.35%, with the minimum balance required being ￡2,000.
Nationwide (NBS.L) has a fixed-rate savings product offering 4% for one year. The minimum deposit is just ￡1 and you must be registered with Nationwide's online bank.
How do fixed-rate savings accounts work?
Unlike easy-access savings, where interest rates can vary, fixed-rate accounts 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.
You must leave your initial deposit for a fixed period without making withdrawals. If you touch your money, you forfeit any interest.
What are the best easy-access savings accounts?
Easy-access savings accounts let you withdraw your money without notice. With that ease of access comes lower interest rates, but 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.
The Chip Easy Access Saver account pays 5% with and there is no minimum amount required to open. Interest is paid monthly and you can open the account via the app.
Sidekick has a 4.89% deal that pays interest monthly. You need at least ￡1,000 to open the account via the app and you can invest up to ￡85,000. An additional 0.45% bonus can be earned for 12 months by investing a minimum of ￡1,000 into a Sidekick investment portfolio.
Oxbury has a 4.87% deal that pays interest monthly, for those with the minimum ￡25,000 to open the account, which is done via an app. You can invest up to ￡2,000,000.
There are even higher-paying easy-access accounts, but they are not for new customers. Santander's (BNC.L) Edge Saver, for instance, offers 6%, but it is only for current account holders.
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 or keep it accessible at all times? 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.
These are ideal for those who know when they might need their cash but don’t want the temptation of dipping into it at any time.
You 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.
Santander via Prosper has a 365-day offer that pays 5.50%, the top offer on the market. You’ll need at least ￡20,000 to open it and can deposit up to ￡250,000. The same bank offers a 90-day notice account that pays 5.15% with the same requirements.
BLME has a 90-day notice account that pays 5.15%. You need at least ￡10,000 to open, which can be done online or by email.
Interest rates with notice accounts are variable, which means they 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 over 10% returns.
Most regular savings accounts require you to put money away each month with interest paid yearly. It is not uncommon for the offer to be available only to current customers.
Principality offers 8% in a six-month regular saver account. You open an account and pay in up to ￡200 each month. Interest is calculated on the money in the account each day and paid six months after opening.
The Co-op bank has a 7% deal for existing customers. Fixed for one year, you can save up to ￡250 per month and can skip months without penalties.
Every deal mentioned here is covered by the Financial Services Compensation Scheme, so you are protected up to ￡85,000 or double if it’s a joint account.
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