After banks embarked on yet another round of interest-rate cuts in the last few weeks, savers will be in despair. The average savings account is now paying less than 1% interest, while inflation sits at 1% so the typical savings pot is now shrinking in real terms. Many people have been using high-interest current accounts to earn a better return on their savings, with rates of up to 5% available.
However, current accounts have low caps on how much money they will pay interest on (typically £2,000-£5,000) and rates on these are now coming down as well. So if you have a large amount of savings, where should you put it?
With traditional savings accounts the best rates are reserved for people prepared to lock their money away for several years. Secure Trust Bank is top of the tables with a five-year fixed-rate deal paying 2.01%. For a two-year fixed rate, you can get 1.65% from Atom Bank, but you will have to manage your account via an app. If you'd rather use a more traditional account, OakNorth Bank pays 1.55% on a 30-month account.
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Anyone who needs faster access to their cash might want to look at Charter Savings Bank's 95-Day Notice account. You have to give more than three months notice before you can make a withdrawal, but in return you get 1.31%. However, if you need instant access, then I'd suggest opting for Santander's 123 Current Account it pays 1.5% on balances up to £20,000. There is a monthly fee of £5, but even factoring that in, someone depositing £20,000 would be earning 1.2% interest.
The introduction of the personal savings allowance means most people can earn interest tax-free (basic-rate taxpayers can earn £1,000 per year and higher-rate taxpayers get a £500 per year allowance, with additional-rate taxpayers getting no allowance).
This has made cash individual savings accounts (Isas) less attractive, but they can still play a role if you expect to earn a lot of interest each year, or if you will be an additional-rate taxpayer. Metro Bank offers a five-year, fixed-rate cash Isa paying 1.5%, or for a shorter fix you can get a 1.15% one from Aldermore and Kent Reliance over two years.
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Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.
Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.
Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.
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