If you're looking to save, it's important to ensure you're getting the most favourable terms. Here's a list of the most favourable easy access, fixed and notice savings accounts on the market.
According to the FCA's latest survey last year, three out of four savers prefer to keep their money with a current account provider. Given that most people prefer banks or building societies to place their savings with, this means that many could be getting a better return on their investment.
"The Big Four", which include NatWest, Lloyds Bank, Barclays and HSBC, currently offer below average rates on easy access accounts. This does not include exclusive offers for existing customers or accounts that limit withdrawals, such as Lloyds Bank's Club Lloyds Advantage Saver.
For example, the Flexible Saver account from HSBC has a rate of 2 per cent, which means a balance of £15 000 would yield £300 in a year, assuming the interest rate remains unchanged. In contrast, the same deposit could yield £151 more each year if held with the highest-paying provider.
Last year, the FCA and the government put pressure on banks to raise savings rates, and this has led to some changes. However, as Mark Hicks, head of active savings at the investment platform, points out, savers should still explore their options.
"To achieve much more, you can move to a more competitive account. These accounts are usually offered by smaller and newer banks and cash savings platforms," he notes.
Best savings accounts
Before you start comparing rates, you need to define your goals to find the most suitable account.
Fixed-rate savings accounts tend to offer more favourable interest rates than variable-rate accounts, but access to your funds is limited. These accounts are ideal for long-term savings goals, and currently the best fixed rate is 5.25%.
The best easy access account offers 5.02% and allows instant withdrawals. It is suitable for building up an emergency fund.
Rates on easy access accounts can also vary as they are variable rates. However, notice accounts offer variable rates, often more favourable than simple access accounts, and the maximum rate is currently 5.26%. However, access to the funds isn't instant and you'll need advance notice to do so.
What is an easy access savings account?
Easy access savings accounts allow you to withdraw money without notice, but there's usually a price to pay for this freedom: fixed-rate bonds often offer more favourable terms.
Although the terms 'instant access' and 'easy access' are sometimes used synonymously, there is a difference between the two. Our guide will help you make sense of this.
Currently, the most favourable fixed rate is offered on six-month bonds at 5.25%. However, for a longer period, SmartSave offers a rate of 5.18% for a year.
With a minimum deposit of £10 000, you can expect to receive £518 in interest over the whole term. In comparison, the average annual fixed rate bond will yield £58 less in interest.
What is a fixed rate savings bond?
Fixed rate bonds offer a guaranteed rate of interest for a set period of time, providing transparency and predictability of your investment returns in the context of inflation.
This is just one of the reasons why fixed rate savings accounts are differentiated from their easy access counterparts.
Chris Irvine, director of savings at Yorkshire Building Society, highlights that when pricing fixed products, they take into account the appetite for mortgage lending by analysing interest rate swaps and market conditions.
The term of a fixed rate bond also plays an important role in determining its interest rate. Annualised fixed rates currently offer the highest yields, but longer-term bonds have previously offered higher rates. This reflects the market's expectations of future changes in the base rate: higher in the short term and lower in the longer term.
What is a regular savings account?
Regular savings accounts, although advertised as some of the best on the market, will likely not maximise your returns.
This is because these accounts are designed to build a regular savings habit rather than earning from a lump sum contribution. They usually have contribution limits and require regular payments, and some accounts may even charge penalties for missing payments.
As a result, the interest you receive will always be limited. So, for some people, contribution limits may be more important than the stated rate.
What is a notice account?
When using a notice account, it's important to give the bank advance notice of your intention to withdraw your money. This is usually anywhere from two weeks to several months, depending on the terms you agreed to when you opened the account. These accounts usually charge more than easy access accounts, as the bank needs to plan in advance for access to the funds. If you need money urgently, some banks provide early access to cash for a fee, but this can result in a loss of interest, so it's important to carefully weigh up the best rates and notice terms.
Shariah compliant savings accounts offer an alternative for those who follow the principles of Islam. Under Sharia law, money has no intrinsic value and therefore interest is prohibited. Instead, such accounts pay an expected profit rate (EPR), which is regulated by the FCA. Such accounts are also protected by the FSCS and although the expected return is not guaranteed, there have been no cases in the UK where a Shariah compliant provider has failed to pay the stated rate.
What are the rates on premium bonds?
Premium bonds from National Savings & Investment (NS&I) Bank provide an attractive alternative for some savers. They differ from traditional savings accounts in that their interest payment is not dependent on your balance. Instead, the interest payment is split into a number of prizes that range in value from £25 to £1 million.
The minimum deposit for these bonds is £25, and every pound invested increases your chances of winning. NS&I offers two £1 million jackpots each month and the odds of winning are 21 000 to one. This means that you need to invest £21 000 in NS&I to be guaranteed to win any prize. However, the maximum amount you can accumulate is capped at £50 000.
Is my money protected?
When you open a savings account, you should make sure your savings are protected by the Financial Services Compensation Scheme (FSCS). This scheme is designed to keep your money safe and reimburse you if your chosen financial provider goes bust.
The FSCS is essentially an 'insurance reserve' for depositors in the event that their bank or financial institution faces financial difficulties. This fund is funded by contributions from financial institutions, and every UK-licensed financial services firm contributes to it.
It is important to remember that there is a limit to the amount of savings that the FSCS covers. This limit is currently £85 000 per person for each financial institution with a banking licence.
If you have joint accounts, the total limit of protection is up to £170 000.
The Governor of the Bank of England, Andrew Bailey, has stated that the central bank is considering increasing the level of protection for savers.
It's important to remember that if you have accounts with two banks belonging to the same group, only up to £85 000 will be protected.
For example, if you have accounts with both Halifax and Bank of Scotland, both of which are owned by Lloyds Banking Group, the overall protection only applies up to £85 000 across all of these accounts.
Wrapping up
In the end, choosing a savings account depends on your personal financial goals and preferences. You should carefully evaluate all available options, taking into account rates, withdrawal terms and the level of protection for your savings. If necessary, consult a financial advisor or use comparison tables to choose the account that is best for you. Remember that well-planned savings can be the foundation for your financial well-being in the future.
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