Best savings account deals as Bank of England holds interest rates

🗝️ Key Points

• 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 November, dampening hopes for further monetary easing this year and dealing a blow to mortgage holders.
• However, this is good news for savers, as most deals will remain untouched.

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 November, 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 price index (CPI) was 3.8% in September, the same as in July and August, 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.

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.”

Read more: Should you invest in gold?

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.

Alice Haine, personal finance expert at Bestinvest by Evelyn Partners, said: “Keeping interest rates on hold at 4% is welcome news for savers as it means average savings rates may stay higher for longer.

“Savings rates have been edging down in recent months and, with inflation still sticky, real returns are shrinking. Savers should avoid sitting on the sidelines waiting for conditions to improve. Money languishing in an account paying a dismal rate should be moved swiftly to a more competitive option to ensure it works as hard as possible.

“It is also vital to consider the post-tax returns, particularly as fiscal drag pulls more of people’s income into higher income tax bands. This is why tax efficiency matters.

“Too much money held in a regular bank or building society account puts savers 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, higher rate taxpayers just £500 and additional rate taxpayers get no allowance at all. For higher-rate taxpayers, real returns after tax may be barely positive, even on the most competitive accounts.

“A tax-efficient savings strategy can help mitigate this. Up to £20,000 can be subscribed to an individual savings account this tax year, shielding income and gains from tax – a route more savers are taking as tax and inflation erode returns. Many switch cash from regular savings accounts into cash ISAs to reduce the tax hit, but plans may get disrupted if the chancellor pushes ahead with ISA reforms in her budget.”

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.

Until recently, savers could earn a market-leading 5% for three months, but now the best offer is 4.5% from GB Bank via the Prosper platform on a six-month term. Interest is paid at maturity, and a minimum investment of £20,000 is required.

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.

Monument has a 4.47% one-year deal. Interest is paid annually, and you can invest from £1,000 to £1,000,000.

LHV pays 4.46% on a one-year deal. Interest is paid at maturity, and you can invest anywhere from £1,000 to £1,000,000.

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 4.2% 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 house prices see fastest growth since January as mortgage approvals rise

Monument launched a market-leading 4.51% deal but you do need at least £25,000 to open the account. Interest is paid monthly and you can invest up to £2m.

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%.

Cahoot has a 4.40% offer which you can open from £1 and save up to £2,000,000. If you were to put £1,000 in this account, your balance after 12 months would be £1,044.

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.

Read more: Lenders slash mortgage prices as Bank of England holds interest rates

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

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

GB Bank via Prosper has a 4.6% on a 65-day deal this week. This will drop to 4.4% on 23 November. You’ll need at least £10,000 to open the account and can invest up to £2m.

Oxbury almost completely dominates the table this week, with 4.55% on a 180-day deal and a 4.54% on 120 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.

Zopa 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 and there is no minimum monthly deposit.

Read more: What a cut to the cash ISA tax-free savings limit could mean for your finances

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.

First Direct pays the same 7% but you can save 300 every month.

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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