Research from Moneyfacts shows savings rates since March 2020 have fallen across all products because of the coronavirus outbreak. Rates on easy access savings accounts and easy access ISAs have been hit particularly hard and have more than halved in this time.
There is also less choice now for savers, with 344 fewer options than in March 2019. In March this year there were 1,351 savings accounts on the market and 417 cash ISAs but this fell to 1,083 and 319 respectively by August.
In the previous year, rates had been slowly edging up, providing some hope for savers who have faced low rates since the Bank of England cut the base rate to 0.50% in March 2009. However, following the outbreak of the pandemic, it was lowered to a record low of 0.10% in March, where it still remains.
Inflation has matched interest rates in dropping to record lows, with the Consumer Prices Index (CPI) measure of inflation falling to 0.5% in September, according to the Office for National Statistics (ONS).
This means that although savings rates are miserably low, it is possible to beat inflation which is better for your money than leaving it in an account paying little or no interest.
So despite the gloomy prospects, if you have money sitting around, it’s better to put it in a savings account where it can earn some interest, rather than leaving it to languish in a current account paying little or no interest altogether.
With the best easy access savings accounts paying just 0.80%, and the top notice accounts pegged back at 1.40%, you’re easily able to beat inflation whichever account you go for.
The other options are to save smaller amounts in a high-interest current account if you can find one or look to the stock market for growth. However, the best savings account for you will depend on your own circumstances, and your savings goals.
Here we look at the best savings options for a variety of savers with different amounts to deposit and different aims for their finances. You might like to read our frequently asked savings account questions before diving in.
If you have less than £5,000 to save and want easy access to your money, high-interest bank accounts may be an option for earning interest on limited amounts.
The offers aren’t as good as they once were but there are still savings to be had. Virgin Money, for example, pays 2.02% interest on balances of up to £1,000 and there’s no minimum amount to pay into the account. If you have the current account you can then open a linked savings account which pays 0.50%, although this is lower than the market-leading easy access savings bonds.
There’s also Nationwide’s FlexDirect account, which pays 2% on balances up to £1,500 for the first year. You have to pay in £1,000 a month and after the first year, the rate drops to 0.25% so this is when it might be time to switch.
If you have a Club Lloyds account, you can earn 0.6% on balances under £4,000 and 1.5% on between £4,000 and £5,000 with a minimum of £1,500 to pay in each month.
There’s also a number of linked savings accounts, which you can open if you have a current account with the same provider. At RBS and NatWest, for example, you can earn 3.04% with its regular saver on balances of up to £1,000.
Rates for regular savings accounts that allow withdrawals remain low but the benefit here is you can access your money whenever you need to without penalty. The best rate is 0.80% from Leeds Building Society. For this account there is a minimum of £5,000 and you can only make two withdrawals a year. For unlimited withdrawals Atom Bank pays 0.75% on its easy access savings account, which has a minimum deposit of £100 to open.
Variable rate cash ISAs don’t offer much better returns currently either. The top paying account from Yorkshire Building Society pays 0.75% and you must give 60 days’ notice to access your money and deposit at least £100.
The best regular savings accounts pay more than easy-access savings, but like savings accounts linked to current accounts, deposits are limited. Coventry Building Society pays 1.55% on up to £500 deposited a month while Principality Building Society pays 1.5% on a maximum of £250 per month.
These accounts require 30 to 180 days’ notice to access funds and there is usually a minimum deposit. The best savings rates are usually for online accounts only although the current market-leading account with 35 days’ notice paying 1% is from Close Brothers and is opened by post. You can usually choose between monthly or annual interest with one of these.
Remember, the first £85,000 you deposit in any single regulated bank or building society is protected under the Financial Services Compensation Scheme (FSCS).
Top rates for 1-year fixed rate savings bonds come from Union Bank of England paying 1.05%, although this account requires a £5,000 deposit. Tandem Bank pays 0.95%, has a minimum deposit of £1, and the account can be opened online.
Fixed rate cash ISAs provide a guaranteed tax-free savings return.
The top 2-year fixed rate cash ISA from Leeds Building Society pays 0.85% on a minimum of £100 while Principality pays the same rate of interest and has a minimum of £500 for deposits.
You can get a better rate of interest from Gatehouse Bank, of 0.95%, but the deposit to open an account is higher at £1,000.
The best rate available for a 5-year fixed rate savings bond is 1.5% from UBL UK. However, this isn’t much more than an account with a shorter fixed period will give you and your money is locked away for the next 5 years.
If you opt for a 2-year fixed rate savings bond, Tandem has an account paying 1.2% interest which has a minimum deposit of £1,000 and interest is paid annually. While for savers with a lot of cash to spare, Close Brothers has a 2-year account paying 1.15% but it has a minimum deposit of £10,000.
Fixed rate ISAs for 3, 4 and 5-years used to pay more than shorter-term accounts but there’s not a huge amount of difference at the moment.
The market-leading account for a 2-year fixed rate ISA is 1.1% from UBL UK, which has a minimum deposit of £2,000. If you opt for a longer account the best rate available is 1.4% from the same bank, with a £2,000 minimum deposit.
In the hunt for returns that beat inflation, investment ISAs or stocks and shares ISAs can provide bigger returns, but they’re not guaranteed and are riskier because stock market investments can go down as well as up. How you invest depends on your attitude to risk and how long you’re willing to invest for.
Peer-to-peer (P2P) lending is a relatively new form of investing and comes with bigger risks, but potentially higher returns. Your money is not protected by the FSCS, although there are other protection schemes in place.
To find out more, read our introductory guide to Innovative Finance ISAs.
The ongoing low interest environment is challenging for savers, which means it’s even more important to assess the best options to maximise returns.
While there isn’t much good news, at least it’s possible to beat inflation. By checking out the options now, and thinking about your savings goals and attitude to risk, you’ll be in a prime position to build up your savings when rates do rise.