With many of us feeling that our finances are stretched to the limits, it’s vital to ensure that any spare cash you have available to tuck away into savings is working as hard as it can for you. The bad news is that savings rates have fallen across the board since the Bank of England Base Rate cut in May.
While the base rate was kept on hold in June at 4.25%, many are predicting more cuts to come. But it’s not all bad news, as there’s still a host of banks and easy-access accounts paying an impressive 5% or more on your cash. As ever, it’s key to read the small print before making any decision. You want to be sure that any account is right for your needs. Here we look at what’s on offer and how to bag the best rates around.
Easy access accounts
Chase recently launched the Chase Saver with booster rate offer paying 5%. This could be a good option if you’re looking for a straightforward no-notice savings account, as withdrawals and further additions are permitted at any time. There is also no minimum opening amount required. Just be aware this rate includes a significant 2.25% bonus for 12 months, while it’s only available to new customers. There’s also a £25,000 daily external transfer limit, so savers with larger pots need to be aware of this.
Elsewhere, Cahoot is also paying 5% on its’ Sunny Day Saver, another instant-access account. You get this rate for one year on balances up to £3,000; the minimum investment is £1. Note that no interest is paid on balances over £3,000.
Current accounts
Right now, it’s possible to get 5% on a current account, as Nationwide is paying this rate on its FlexDirect. Holders can earn 5% on balances up to £1,500 – though it only lasts for 12 months. Also be aware that to qualify, you are required to pay in £1,000 a month. If not, the rate drops to just 1%. As an added benefit, you get an interest-free overdraft for a year when opening a Nationwide FlexDirect account, provided you meet eligibility criteria.
Regular saver accounts
A host of regular savers are paying 7% at present. There’s a caveat though: while regular savings accounts pay some of the best returns, they can often come with lots of Ts and Cs that you must adhere to if you’re to avoid ending up on a less competitive rate. This includes things such as paying in a set amount each month, and the requirement to hold a current account with the same provider.
Sarah Coles from investment platform, Hargreaves Lansdown, said: “Regular savings accounts often have hurdles to overcome in order to open one, strict rules to keep it open, and then – after all that – you need to switch again after a year or your interest rate plummets.”
Right now, some of the best buy offerings come from First Direct and The Co-op. First Direct is paying 7% on its regular saver into which you can pay in between £25 and £300 a month. The Co-op is another provider paying 7% on its regular saver. This account is a little less strict, as you can pay in up to £250 per month – and access your cash at any time. But with both of these you must also hold a current account with that bank.
Children’s accounts
If you are looking to slot money away on behalf of a little one, it’s worth looking at the Halifax Kids Monthly Saver, as this is paying 5.5%. The account allows you to pay in between £10 and £100 per month.
Just note that once you’ve put money in, you can’t access it until the end of the year, unless you opt to shut your account.
What about fixed rates?
With many predicting the base rate will fall further this year, fixed-rate savings accounts could come in for the chop. “The market now expects more base rate cuts this year. For savers, it could put downwards pressure on fixed-rate deals,” said Coles. “Shorter fixed deals have already fallen as a result of the May rate cut but longer fixes could come under pressure too. If you’re planning to fix for between three and five years you might want to act sooner rather than later.”
Don’t forget about the Personal Savings Allowance
When slotting money away into savings, remember that you can only earn up to £1,000 interest tax-free (as a higher-rate taxpayer), or £500 (as a lower-rate taxpayer). Additional rate taxpayers have no allowance at all. ISAs can be a big help here, as they offer a more tax-efficient approach. In any one tax year, you can currently save a huge £20,000 into ISAs – and all interest is tax-free.
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “Savers should always remain mindful of their personal savings allowance. As this has stayed the same since its creation in 2016, it has created a tax headache for more savers in recent years. This is particularly the case for higher rate taxpayers who only have an allowance of £500.”
Cash ISA paying more than 5%
Right now, Moneybox is paying 5.46% on its variable rate ISA. With this account, the 5.46% rate includes a bonus of 1.3% for three months, and only three withdrawals per year are permitted. If you wanted to, you could put your entire £20,000 annual allowance into this one cash ISA – and any interest you earn will be tax-free.
Split your ISA allowance carefully
There are four different types of ISA to choose from: Cash, stocks and shares, Lifetime ISA (LISA) and Innovative Finance ISA (IFISA). In each tax year, you have the option to open one of each. It makes sense to be strategic about splitting your ISA allowance to suit your goals – such as maximising interest rates, investing for growth, or saving for a first home. To find out more about the four different types of ISA, head over to our quick summary.
For more information
To find out more about the best rates available on cash savings, try sites such as Moneyfactscompare and MoneySuperMarket. To find the best home for your investments, check out our free comparison tools.
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