Why you need to act fast to get the best deals on savings accounts

Interest rates on savings accounts have jumped over the past year as providers try to keep pace with the Bank of England (BoE), which has increased its key lending rate to 4%. What’s more, markets are pricing in a further 0.25% increase when the BoE publishes its next rate decision in March. 

While banks are under no obligation to pass rate rises on to consumers, they do need to remain competitive. 

This means the best deals don’t tend to stay around for long. Lenders tend to launch new savings products with eye-catching interest rates to entice savers and then withdraw them relatively quickly once they’ve reached a set fundraising goal. 

“Savers will need to act quickly to take advantage of the latest deals as some of the top savings’ rates have tumbled over the past month,” says Rachel Springall, finance expert at Moneyfacts. 

“Inflation is predicted to come down to around 3%  in 2024, and based on today’s top rates, savers would be able to make a return on their cash,” continues Springall. 

While it’s worth noting there is not a single savings account that outpaces the current rate of inflation – CPI is currently sitting at 10.1% –  variable interest rates are expected to continue to improve “due to competition and the consecutive base rate rises fuelling the market”, says Springall. 

So if you have a lump sum sitting in an account, it’s worth looking into the best savings accounts to make sure you’re getting the best rate. 

Rates on cash ISAs have also improved, and savers happy to tie their money up in a fixed rate bond, such as a one-year fixed savings account or a one-year fixed bond with NS&I, stand to earn around 4%. 

What are the best savings accounts on offer? 

Banks are stepping up the offers on savings accounts in a bid to raise assets, which they can then use to fund loans at higher rates. 

This is good news for cash savers, who can currently earn as much as 7% on cash savings. 

However, the deals may go as quickly as they come, so you’ll have to act fast to bag the best interest rates for savings accounts. 

Some of the top deals available right now include: 

• First Direct is offering 7% on its regular saver. You can pay in between £25 to £300 a month, but you have to be a First Direct current account holder. The rate is fixed for the first 12 months, but it may drop after that. You can also get a £175 switching bonus.
• Lloyds Bank Club Monthly Saver offers 5.25% on a maximum deposit of £400 a month. The rate is fixed for one year, but you need to hold a Lloyds current account already.  Lloyds is also offering a £200 switching bonus. 
• Natwest Digital Regular Saver offers 5.12%, but that’s only on the first £1,000. After that, the rate drops to 1% on balances between £1,000 and £5,000 and halves again on balances over £5,000. You have to be a current account holder, and can currently get a £200 switching bonus. 

If you’re happy to lock your cash away for a year you will earn a higher return rate, typically over or around 4%, but won’t be able to touch your money for 12 months. 

These include: 

• SmartSave 1 Year Fixed Saver pays 4.21% and has a minimum deposit of £10,000. 
• Castle Trust Bank 1 Year Fixed Saver pays 4.16% and has a minimum deposit of £1,000 
• And Atom Bank 1 Year Fixed Saver pays 4.15%, with a minimum deposit of £50. 

National Savings & Investments (NS&I) has also relaunched its one-year fixed bonds. It’s currently offering rates of up to 4%. 

If you’re happy to lock your money away for two years,  Union Bank of India’s 2 Year Fixed Saver is offering 4.35%, and Smart Save’s 2 Year Fixed Rate Saver offers a rate of 4.26% 

These are just some of the deals on offer right now. We have also put together a list of the best savings account on the market at the moment. 

There are even five-year fixed rates available. The highest one is from Isbank via Raisin, offering a rate of 4.5% on up to £85,000. 

However, regardless of how attractive the rate looks, locking your money away for five years or more might not be the smartest option. 

Should you have a cash savings account?

It’s always a good idea to keep an amount of cash on hand to cover any unexpected expenses. 

Easy access accounts are a good place to keep your emergency savings because, as the name suggests, you can withdraw your money at any time. 

The good news is the average easy access cash savings rate now sits at 1.43%, the highest level in over 13 years.  

Still,  although interest rates are up, inflation is higher at over 10%, meaning in real terms, cash earning an interest rate below inflation is losing value. So, for long-term savings, investing is still a good option. 

But the current environment means now is a good time to review your cash and look to place it somewhere where you can earn a decent rate of interest. 

“We often see people hold on to cash when the markets are volatile, but remember, market volatility is normal  – and as long as you are only investing money for the long term, you can potentially grow your money to beat inflation and see a greater benefit from compounding,” says Kalpana Fitzpatrick, senior digital editor of MoneyWeek and author of Invest Now. 

Higher rates on saving accounts are reason to celebrate, but “the cost of living crisis is having an impact on savers’ attitudes towards keeping money resting in a flexible pot”, says Springall. 

“According to the Bank of England, there was an outflow of almost £5bn from interest-bearing sight deposits in October, a clear sign that consumers are pulling money out of flexible accounts, but at the same time, there was demand for fixed accounts recording an inflow of £11.3bn into time deposits,” says Springall. 

“Moving into 2023, savers and providers alike will need to act quickly to keep on top of the changing market.”

Providers put out their deals to raise a desired amount of money, and once they’ve secured that they withdraw them. This leaves only a small, up-to-date pool of savers to cash in on the best rates. 

Rising interest rates are bad news for borrowers 

While savers are benefiting from the Bank of England’s interest-rate rises, those borrowing money are getting the short end of the stick. 

And more interest rate rises are on the cards, meaning things will only get more difficult for those with any type of debt to repay.