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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Will Poland’s new president stifle its stock market’s winning streak?Poland’s stock market has outperformed many of its European peers, but with a newly-elected populist President at odds with a Liberal government, what lies ahead?
-
Fund flows rose in April but did investors sell in May?ISA season prompted the highest level of inflows into investment funds during April but the mood may have changed in May
