With the cost of living crisis, British households are constantly looking for ways to boost their cash flow, and savings accounts can help.
After years of low interest rates, high-yield savings accounts are having a moment after the Bank of England just cut rates from a 16-year high of 5.25% to 5%. While homeowners are facing higher mortgages, there is also a silver lining to the higher cost of borrowing, and consumers can now find UK savings accounts that offer higher interest rates than the rate of inflation.
According to the British Office for Statistics (ONS), the inflation rate reached 2 percent in May for the first time in almost three years. It remained unchanged in June.
Savers should shop around for the best deals and check what interest rate is available to them, as they may still be stuck with a product that is not keeping inflation under control.
The most important factor to consider when choosing a savings account is the difference between an instant deposit account and a fixed deposit account.
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With easy-to-access accounts, you have access to your money when you need it. Fixed deposits, as the name suggests, are accounts where you cannot access your money during the term of the contract. They usually offer better interest rates, but you must agree not to touch your savings for a long period of time, usually between one and five years.
What are the best fixed rate accounts with high interest rates?
The best fixed rate account currently offers 5.40% and is available from Union Bank of India in the UK.
This fixed deposit account requires a minimum balance of £1,000, which must be locked for 12 months. You can invest up to £500,000. Withdrawals are not permitted during the term of the contract and you can only open this account online or by post.
For example, if you deposit £1,000 into this account, you will have £1,054 at the end of the year.
GB Bank is offering an annual offer of 5.26% on a savings account that can be opened with £1,000. The offer is only available through the “savings marketplace” Raisin. Raisin has special deals with banks to offer savings accounts. This means that you open an account through Raisin, transfer money to it and Raisin then transfers the money to the savings account you have chosen.
At GB Bank you have the usual £85,000 FSCS savings protection. Raisin does not offer joint accounts.
Access Bank offers a one-year fixed rate offer at 5.25%, but this requires a minimum deposit of £5,000. You can invest up to £500,000. Withdrawals are not permitted during the term of the offer.
Online banks typically offer higher interest rates than traditional branches, which translates into better returns and provides you with a more efficient way to save and reach your financial goals.
If you prefer to choose a well-known name, branch banks offer slightly cheaper deals, but these are still above the inflation rate.
Barclays (BARC.L) offers the highest interest rate among branch banks. Its one-year fixed-rate savings account pays 4.65%. The requirements are not too strict, with a minimum balance of £500.
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Metro Bank is not far behind, with an interest rate of 4.61% and similar terms. The account has a fixed term of one year and the minimum amount you need to deposit is £500.
Lloyds (LLOY.L) offers a fixed rate savings product at 4.35% for one year. However, the minimum deposit is £3,000 and you must have or open a current account with Lloyds or another savings account to be eligible. For new customers, the interest rate is 4.15%.
How do fixed-interest savings accounts work?
Unlike free-standing savings accounts, where interest rates can vary, fixed-rate accounts give you a set interest rate for the period you choose, whether it’s six months or one, two, three or even five years. These are the most common offers, but some deals go up to 10 years or more.
You must leave your original deposit for a set period of time without making any withdrawals. If you touch your money, you will lose all interest.
What are the best easily accessible savings accounts?
Easy-access savings accounts allow you to withdraw your money without notice. With this easy availability comes lower interest rates, but they are a good option for those who think they may need their money quickly.
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Note that the interest rates on these accounts are variable, meaning they can rise or fall. You will be notified in advance of any change.
At 5.20%, Ulster Bank offers the highest easy access account deal, but you will need a minimum of £5,000 to open an account and there is no maximum limit.
Flagstone pays 5.07% with an easy-to-access account that pays interest daily. The account is provided through SmartSave and can be opened via mobile banking with a minimum deposit of £10,000.
Oxbury pays 5.04% for those who open an account with £25,000. Interest is paid monthly.
There are even higher interest, easily accessible accounts, but they are not for new customers. For example, Santander’s (BNC.L) Edge Saver offers 7%, but is only for current account holders.
Skipton Building Society is paying 5.5%, but again this offer is only available to mortgage holders or those who had a savings account with the lender before January.
What are the best termination savings accounts?
If you can’t decide whether you would rather put your money aside and not touch it for a long time or access it at any time, then you should think about a cancellation savings account.
With cancellation savings accounts, you must cancel your account with your savings provider before you can withdraw your money.
These are ideal for those who know when they might need their cash but don’t want to be tempted to have to access it at any time.
You must give the bank or building society a certain amount of time before you can withdraw your money – usually between 30 and 120 days.
Prosper offers a 185-day deal from Santander International that pays a market-leading 5.60%, but you’ll need a minimum of £20,000 to open the account.
OakNorth offers a 95-day account that earns 5.37% interest after three months. You only need £1 to open the account, which you can do online, by mobile, email or post.
Vanquis offers a 90-day deal with 5.35% interest, the best deal on the market right now. You need a minimum of £1,000 to open the account and can deposit up to £250,000. The same bank offers a 60-day notice account with 5.30% interest and the same requirements.
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Monument offers a 60-day notice account with 5.27% interest. This means that as long as you give the lender around two months’ notice, you can access your money without penalty fees. You’ll need between £25,000 and £2,000,000 to apply.
Investec (INVP.L) offers a 90-day notice account that pays 5.25% after three months. You need between £5,000 and £250,000 to apply.
The interest rate on termination accounts is variable, which means it can rise or fall over time.
What are the best savings accounts?
Those who want to make the most of their cash savings can earn returns of up to 8% with traditional savings accounts.
With most savings accounts, you have to deposit money every month and receive interest annually. It is not uncommon for the offer to be reserved for existing customers only.
Principality offers 8% on a six-month savings account. You open an account and deposit up to £200 each month. Interest is calculated daily on the money in the account and paid out six months after opening.
For existing customers, First Direct offers 7% for a year and allows a maximum monthly deposit of £300. You cannot miss any months, a minimum of £25 must be deposited into the account each month, you cannot make any withdrawals without penalty and if you close the account before the 12 months are up, the interest rate drops to 2%.
The Co-op Bank is offering a 7% deal to existing customers. With a one-year fixed rate, you can save up to £250 a month and skip months without penalty fees.
Nationwide used to have a market-leading offer of 8%, which has now dropped to 6.5%. Nationwide’s offer is a standard savings account, available exclusively to current account customers.
For all offers listed above, you can simply open an account to access the offer.
Skipton Building Society is offering 7%, but this is limited to customers who joined before January 2024.
All transactions mentioned here are covered by the Financial Services Compensation Scheme, so you are protected up to £85,000.
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