Best savings account deals as BoE holds interest rates

UK households are always looking for ways to make their money go further amid the cost of living crisis, and savings accounts can help.

The Bank of England opted to hold interest rates steady at 4% on Thursday, defying hopes for further monetary easing this year and dealing a blow to mortgage holders and borrowers across the UK. However, this is good news for savers, as most deals will remain untouched.

Still, sticky inflation is squashing savers’ real returns on their pots of cash, making it essential for people to shop around.

The rate of inflation as measured by the Consumer Prices Index (CPI) was 3.8% in August, the same as in July, according to Office for National Statistics (ONS) figures.

Financial information website Moneyfactscompare.co.uk said the average savings rate, based on market analysis, is currently 3.45%.

Experts urge savers to shop around for the best deals and review their accounts regularly, as many may still be sitting on products that fail to beat inflation.

Caitlyn Eastell, a spokesperson at Moneyfactscompare.co.uk, said: “Sticky inflation will no doubt leave many savers disheartened, as the Moneyfacts average savings rate shows real returns remain in the negatives for the third consecutive month.”

“Typically, more attractive returns are offered to savers willing to lock their cash away for longer. Depending on their specific savings goal, this may not be for everyone.

“With the future of further base rate cuts being uncertain, some savers may be willing to risk a shorter term so they can access their money sooner.”

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Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: ““Keeping interest rates on hold at 4% is better news for savers as it means average savings rates may remain higher for longer. Savings rates have been easing downwards in recent months and with inflation creeping upwards, real, pre-tax returns are very much on the decline. That should not be a cause for apathy, however.

“Anyone with money idling in an old savings account paying a dismal rate should still shop around to secure the best deals while interest rates remain on the higher side. Considering post-tax net returns is crucial, especially as fiscal drag pulls more of people’s income into higher income tax bands.

“Just remember storing too much in a regular bank or building society account puts the saver at risk of breaching their Personal Savings Allowance, a threshold unchanged since its introduction in 2016. Basic rate taxpayers can earn £1,000 of interest tax-free, while for higher rate taxpayers this is limited to just £500 and additional rate taxpayers get zero allowance. For higher-rate taxpayers, real returns net of tax may only be marginally positive even on the most competitive accounts.

Jasmin Ehlert head of bank analytics at Raisin UK, said: “Savers should not overlook the opportunity this environment presents.

“With inflation elevated, leaving money in accounts paying little interest can erode its value in real terms. The good news is that there are still savings products offering over 4%.

“Switching to a higher-paying account remains one of the simplest and most effective steps people can take to protect their financial well-being.”

The main factor to consider when choosing a savings account is the difference between easy-access and fixed-term accounts.

Easy-access accounts allow you to access your money when you need it. Fixed-term means you can’t access your cash for the duration of the deal. They usually offer better rates, but you must be comfortable not touching your savings for an extended period, usually between one and five years.

“For money you don’t need for a specific period, it’s well worth considering locking in a fixed rate deal now. You can get fixed terms around 4.5% – far beyond any expectations for inflation,” said Hicks. “This will be fixed for the full period, so even when the Bank of England starts cutting rates again, your deal is secured.”

Up until recently, savers could get a market-leading 5% for three months, but now the best offer is 4.52% from JN Bank. You need £100 to open the five-year account and can invest up to £500,000.

Santander (BNC.L) via Prosper pays 4.5% for a three-month account that requires £10,000 to open.

Prosper is a “savings marketplace,” which means that it negotiates special deals with banks to offer savings accounts, often at higher rates than those available directly with the bank.

Chetwood Bank pays 4.47% but you need £1,000 to open the account. There is no limit on how much you can invest.

Online banks typically offer higher rates than traditional bricks-and-mortar branches, which translate into better returns, giving you a more efficient way to save and reach financial goals.

If you prefer to go with a familiar name, the high-street lenders have slightly lower offers, but are still above inflation.

Tesco (TSCO.L) Bank offers the highest rate among high-street lenders, with a one-year fixed-rate savings account that pays 4.21% annually, with the minimum balance required being £2,000. However, you can invest up to £5m.

NatWest (NWG.L) has a fixed-term savings account offering 3.8% for one year. The minimum deposit is just £1 and interest will be paid on the first business day of every month and on the maturity date.

Unlike easy-access products, where interest rates can vary, fixed-rate accounts earn a set rate of interest for the period you choose, whether that’s six months or several years. Those are the most common deals, but some offers go up to 10 years and over.

You must leave your initial deposit for a fixed period without making withdrawals. If you touch your money, you forfeit any interest.

Easy-access savings accounts let you withdraw your money without notice. With that ease of access come lower interest rates, but they are a good option for those who think they might need their money in a hurry.

Be aware that rates on these accounts are variable, which means they can go up or down. You will be notified of any change ahead of time.

Read more: UK mortgage market stalls as interest rates held at 4%

Chase (JPM) has dropped its 5% deal but is still leading the table with a new 4.75% offer that you can access with only £1. New customers can open its linked easy-access saver within 31 days of opening the account.

Cahoot pays 4.4% in an easy-access account that requires only £1 to open. You can deposit up to £2m.

Vanquis Bank via Snoop BS pays 4.35% with only £1 minimum to access, where you can invest up to £85,000.

There are even higher-paying easy-access accounts, but they are not for new customers. Santander’s (BNC.L) Edge Saver, for instance, offers 6%, but is only available to current account holders.

Can’t decide on whether you want to put your money away and not touch it for a long time or keep it accessible at all times? Maybe you should consider a notice savings account.

Notice savings accounts require you to give notice to your savings provider before you can withdraw your funds.

These are ideal for those who know when they might need their cash but don’t want to face the temptation of dipping into it at any time.

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You need to give the bank or building society a set advance warning before you can withdraw your money — usually between 30 and 120 days, though this can be longer.

The Stafford BS has kept its offer at 4.61% on a 120-day deal this week. You can invest anything from £5,000 to £450,000.

Oxbury has upped its notice deals and almost completely dominates the table this week, with 4.55% on a 180-day deal, 4.54% on 120 days and 4.52% on 90 days.

Interest rates with notice accounts are variable, which means they could go up or down over time.

For those looking to make the most of their cash savings, regular savings accounts can offer 7.5% returns.

Most regular savings accounts require you to put money away each month with interest paid yearly. It is not uncommon for the offer to be available only to current customers.

Principality offers 7.5% in a six-month regular saver account, after dropping its 8% deal. You open an account and pay in up to £200 each month. Interest is calculated on the money in the account each day and paid six months after opening.

Read more: Rachel Reeves plans boost for savers with cash in low-interest accounts

Zopa has just launched its Biscuit account, which pays 7.1% on monthly deposits of up to £300. Account holders also receive 2% AER interest on all balances and 2% cashback on bill payments.

The Co-operative Bank has a 7% deal for existing customers. Fixed for one year, you can save up to £250 per month and can skip months without penalties.

Every deal mentioned here is covered by the Financial Services Compensation Scheme, so you are protected up to £85,000 or double that if it’s a joint account.

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