The mood music for savers isn’t good. The world economic outlook is gloomy and there’s huge uncertainty here in the UK, so the City’s long-term interest rates have plummeted. And it’s these that many fixed savings rates are based on – so they’re dropping too. On top of that, the two top easy-access savings accounts cut their rates within days of each other.
My worry is this may signal the start of a race to the bottom, as happened back in 2016. Seemingly no bank wanted to top the best buys, scared of the huge wads desperate savers pumped in when they did. Rate cut followed rate cut. The top easy-access rate was just 1 per cent, the top 1-year fix 1.4 per cent. I don’t know if that will happen now, or even if it is probable, but it is certainly plausible.
Everyone with money in savings right now should check their rate. If you earn under 1.45 per cent,ask yourself why. If there’s no good reason (for eg they’re locked into a fix) then ditch and switch.
I’m going to run you through the best deals around recently – though things are changing rapidly, so for regularly updated rates see www.moneysavingexpert.com/savings. All accounts I list here have the full UK £85,000 per person, per financial institution savings safety protection – so in the unlikely even if it went bust, you’re protected up to that amount.
The easy simple place to put your cash
With the top easy access accounts, you can put in as much as you like and withdraw at will. So this is your baseline. The two top payers are www.marcus.co.uk and www.cynergybank.co.uk at 1.45 per cent (min £1). These rates include year long bonuses of 0.1 per cent and 0.7 per cent – after that the rate will drop. Easy access rates are always variable, so monitor it every couple of months. If there’s something better move your money there.
There is actually one better paying easy access account, www.alrayanbank.co.uk at 1.6 per cent (min £500). Yet this a sharia account, which means it follows Islamic religious law which prohibits interest. Anyone can open one, but be aware instead of an interest rate, it’s an “expected profit rate” – generally these pay out the full amount, but by definition it isn’t guaranteed.
Is there a way to get a guaranteed rate?
You can earn 2 per cent guaranteed in fixed rate savings – but you won’t be able to withdraw money during that time. If you can lock away even some of your cash (the rest can be in easy-access in case you need it) the rate is higher and certain.
The top one-year fix pays 1.85 per cent from www.habibbank.com/uk/home/ebonds (min £1,000), while the top two-year fix is 1.98 per cent from Axis Bank through savings marketplace www.raisin.co.uk/term-deposit/axi002-axis-bank-uk/ (min £1,000).
Some longer fixes pay more, though be mindful that if interest rates rise, you’re locked in and can’t switch to a better deal. And again there are some higher rate sharia fixed accounts.
Of course, it is somewhat perverse to consider locking money away now as fixed rates have dropped. Yet there is a realistic chance (though I don’t have a crystal ball) they could get lower still, so in a few months we could look back on today’s deals and think they’re pretty decent.
Surprised I’ve not mentioned cash ISAs?
A cash ISA is just a tax-free savings account. Yet these days all basic rate taxpayers have a personal savings allowance meaning you can earn £1,000 interest a year anywhere without it being taxed. Higher rate taxpayers can earn £500/year.
This means most don’t pay tax on savings interest – so as cash ISA rates are lower than normal savings, only those with large savings or very high earnings should be looking at cash ISAs. See www.moneysavingexpert.com/cashISAs for the best buys.
Specialist ways to boost your savings interest
Pay off your debts or mortgage first. If the interest rate on your debt is higher than on savings, then it’s often better to pay off your debt rather than save as you’ll be paying more on your debt than you’re earning on your savings. See www.moneysavingexpert.com/savings/pay-off-debts/.
Earn up to 5 per cent monthly via your bank account. If you put money aside each month, you can earn higher interest with a regular savings account. Current account customers of First Direct, M&S Bank and HSBC Premier or Advance can put £250-£300 a month into linked regular savers paying 5 per cent AER. And Nationwide pays 5 per cent AER on up to £2,500 for the first year within its current account (it drops to 1 per cent after), while TSB pays 3 per cent AER on up to £1,500.
Claiming universal credit or working tax credits – get an unbeatable 50 per cent Government bonus on your savings. The Help to Save scheme lets those on low incomes save up to £50 a month, with a 50 per cent bonus of up to £1,200 paid after two and four years. The account’s easy-access so you can make withdrawals whenever you want, but remember if you’ve very costly debts it’s best to try and clear these before saving. There’s full info on https://www.helptobuy.gov.uk/.
Saving for your first home – a Help to Buy ISA or Lifetime ISA adds 20 per cent, First-time buyers saving in one of these two special ISAs get a 25 per cent bonus added on what you’ve saved to use towards your first home. Which to go for is complex. Help to Buy ISAs win if you’re buying within a year, are under 18 or over 40 (as you can’t have a LISA then), or if you’re not sure you’ll buy a house (as you can withdraw money with no penalty). If not LISAs usually win, as you can put more in therefore the bonus is bigger. But you can only open a Help to Buy ISA until 30 November, so if you’re still deciding it’s worth putting £1 in each account now. Full help on both at https://www.moneysavingexpert.com/savings/lifetime-isas/.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip