Best savings account deals with inflation-beating 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 (BoE) opted to hold interest rates steady at 4% in September, dampening 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.

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.

Data released by the BoE this week found that deposits into banks and building societies rose by £5.4bn in August. The central bank said that this was mainly driven by households putting an an additional £2.6bn into interest-bearing sight deposit accounts, £2.3bn into individual savings accounts (ISAs) and £700m into non-interest bearing accounts. This was offset by savers withdrawing £1.9bn from fixed rate accounts.

Mark Hicks, head of active savings at Hargreaves Lansdown, said: “Despite the slowing of growth, the savings market is still seeing strong flows.”

“With savings rates still available around 4.5%, the prospect of safety and certainty of returns, and an inflation beating rate continues to encourage savers.”

He said that now BoE “base rate falls have steadied, banks and building societies are starting to pay savers more to fix their savings than they do for easy access, this may encourage flows into fixed terms in the near to medium term”.

“It means anyone who doesn’t need a slice of their cash for a year or two should seriously consider tying it up in a fixed-rate deal while rates are so strong,” Hicks added.

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.

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.

Chetwood Bank offers a rate of 4.5% on a five-year account, which requires a minimum deposit of £1,000.

For those seeking a shorter-term product, 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.

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.

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Chase (JPM) has a 4.5% offer for 12 months that you can access with just £1, while Ulster Bank (part of NatWest (NWG.L)) also has an account offering 4.5%.

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 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.

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Zopa’s Biscuit account pays 7.1% on monthly deposits of up to £300. Account holders also receive 2% AER interest on their current account balance 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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