In a world of rock-bottom interest rates, you need to make sure you put your money into the right type of savings account with the best possible rate. Yet there are several different types, and bizarrely, the best savings rates are now on current accounts.
This guide will take you through the maze to find the most profitable home for your cash – and keep it safe.
Our best buys, incl...
In this guide
- 10 savings account need-to-knows, incl...
- Pensioner Bonds: 4% savings for over 65s
- Tool: Savings Calculator
- Savings Q&A
10 need-to-knows before you pick a savings account
A savings account is just a place to dunk cash to earn interest, and save for the future. But don't just go for the headline screaming the highest rate without first examining how it works and what the alternatives are.
If you've costly debts, pay them off before saving
If the interest cost of your debt is more than you'd earn on savings (after tax is deducted) you're better off paying down the debt. If you've £1,000 on a credit card at 20% it costs £200 a year, assuming a constant balance. In savings at 2% after tax, you'd earn £20 a year so you'd be £180 a year better off repaying the card. Much more info in Should I Repay Debts With Savings?
What if I have a 0% card or a really low rate?
Well, if your debt is free, the urgency isn't there to pay it off. But debt at 0% tends to have an end date.
So long as you meet minimum payments, there's nothing wrong with saving while the debt is at 0%, but then paying it off when the intro deal ends. This way, you'll have the best of both worlds – you'll have paid off the debt without paying any interest, plus you'll have earned interest on the savings while you had them.
A low rate is different. You need to examine whether you're actually paying more interest on the debt than you're getting on the savings. When working this out, always remember to factor tax in.
Shouldn't I have an emergency fund?
It is important to have access to an emergency fund in case the worst happens, but that doesn't mean you have to actually have a pot of cash. If you pay off an expensive credit card, then keep the card for emergencies.
If nothing untoward happens then you never need to use the card, but if something goes wrong, then you could always use the card, and you'd be no worse off than had you not paid it off anyway.
A practical example of why this works: Johnny Comelately
Johnny Comelately currently has £5,000 saved up, earning 2% interest after tax, in case of emergency, yet he also has £5,000 on credit cards at 18%. Thus while his savings are earning him £100 a year, his debts cost £900. Overall he is paying out £800 a year.
Now compare what happens if he pays off his debts with his savings, with not doing so:
Situation A: No emergency happens
No change. Keeping both debts and savings costs Johnny £800 a year.
Pay off debts with savings. Johnny now neither earns nor pays any interest, thus is relatively £800 a year better off, and all the new cash he puts aside can go towards genuinely saving.
Situation B: After a year he has to pay £5,000 for an emergency roof fix
No change. Johnny uses the savings for the emergency. This leaves him with no savings and £5,000 of credit card debt at 18%.
Pay off debts with savings. As Johnny has no savings, he has to borrow the £5,000 on his credit cards. This leaves him with no savings and £5,000 debt on his credit card at 18%.
In other words, Johnny is in exactly the same position in situation B, regardless of what he does. Yet before the emergency he was £800 a year better off by paying off his debts with his savings.
So overall, whether an emergency happens or not, the best result is to pay off your debts with your savings. The only time to beware of this is if you're not assured of being able to reborrow the cash.
Usually with credit cards it's fine, as they're a readily available source of credit, but if your debt is a personal loan, there's no guarantee you will be able to get another – in which case an emergency fund is sensible.
If you've got a mortgage, check if you should overpay it before saving
This is the same principle as above: if the mortgage rate is higher than the savings rate after tax, and you can spare the cash, overpaying is a solid financial decision. However, there are possible complications, such as penalties for paying too much...
Will I always be allowed to overpay and is there a limit?
Whether you can overpay your mortgage or not depends on your mortgage provider and the type of mortgage you've taken out.
The vast majority of mortgages allow you to overpay, though there's usually a limit to how much you can overpay. Common limits are £10,000 a year or 10% of the value of your mortgage debt each year.
It's also important to check how it plans to use your overpayment. Some lenders will use it to reduce the term of your mortgage, so your monthly payments stay the same but it'll be paid off quicker. Where the amount overpaid is small enough, others use it to reduce your next monthly payment, which only saves you a few days' interest.
Always check how the mortgage lender plans to use your overpayment, and if possible, say you want it to reduce the balance, and keep your monthly payments the same to really see the benefit.
If I overpay my mortgage can I access that extra cash again?
If you have an offset mortgage the ability to access those extra payments is usually part of the deal. An offset is where you build up savings to reduce/offset the amount of debt you pay interest on, so if you had a £100,000 mortgage and £20,000 in savings, you only pay interest on £80,000.
On other types of mortgages, some flexible deals allow you to borrow back overpayments. However, this practice is far less common now for new mortgages. Check your mortgage terms carefully.
One warning: just because you've overpaid doesn't automatically mean you'll be allowed to borrow the money back in all cases. Your mortgage lender will do checks on affordability so they comply with current lending criteria. For example, you might be turned down if they thought you'd struggle to make future contractual payments – they'd want to keep hold of as much of your money as they could in that case.
Have you used your 2014/15 ISA allowance yet? It allows you to save without paying tax on interest
A cash ISA is simply a savings account where you don't pay tax on the interest. Anyone aged 16 or over can put up to £15,000 into their cash ISA during the current tax year, with the threshold rising each April in line with inflation.
So the first place for taxpayers to put a lump sum is often an ISA as you're likely to earn a bigger return than a standard account, and the interest is tax-free. However, as some bank accounts and regular savings deals beat ISAs, it is not always so simple. See the Starting Saving guide for full info.
Isn't my money locked away in an ISA? (That's a common myth – it's not)
Just like savings accounts, there are different types of ISAs. One of the main types people opt for is an easy-access ISA. And, just like easy access savings, the money's there for you to take it out whenever you like.
Of course, you can get fixed-rate ISAs, where you put money in there for a number of years. But, unlike normal savings, even fixed-rate ISAs have to allow you access to your money, although all will charge an often hefty interest penalty if you do. Find out more about how ISAs work in the Full ISA Guide.
Are you willing to switch bank account? You can boost best buy savings rates
Surprisingly, some banks’ current accounts pay a higher rate of interest than their savings accounts – these are currently the top rates available, other than specialised exceptions. You’ll often need to switch bank account to take advantage, and pass a credit check. For a selection, see our top pick bank account section below, or for a full range of accounts, see the Best Bank Accounts guide.
You said to put cash into an ISA, now you're telling me a bank account's best. Which is it?
Well, why not get the best of both worlds?
You've got your £15,000 cash ISA allowance to use by 5 April 2015 when the current tax year ends, but as long as current account interest rates after tax trump cash ISA rates (which most do), the money is better off there for the short term.
But come the end of March 2015 (just before the deadline to pay into a cash ISA in the current tax year), you could move your cash into an ISA to keep its tax-free status without losing your allowance.
Can you put money aside each month? Consider a regular saver
This is a specific product for putting £10-£500 in every month (maximum deposits vary by account). If you want to save more, combine a few. The main advantage is they tend to pay much higher rates of interest than standard deals. For more details and best buys, see the full Regular Savings Accounts guide.
Can you lock the cash away? Fixed savings give a (slightly) better return
You may want to consider getting a fixed rate savings account where the amount you earn is set in stone over a fixed time period. However, you can't usually access the cash during that time, and even if you can, the penalties can be large.
Usually fixed rates are higher than easy access, so they can be good deals. However, if normal savings rates were to increase during that time, you'd be unable to ditch and switch to a better payer. See the full top fixed rate savings section.
If you're 65+, Government-backed Pensioner Bonds are available, with a 2.8% AER rate for one year, 4% AER for three years, smashing standard fixed savings. Full info, pros & cons in the Pensioner Bonds guide.
Up to £85,000 in savings per person is safe in UK-regulated accounts
Ten years ago, we wouldn’t have had to stress this so clearly. No bank had collapsed in 100 years, but then the credit crunch and global market turmoil hit. After the calamities that hit Northern Rock, RBS, the Lloyds group, Bradford & Bingley, Icesave and Kaupthing, every sensible saver should ask: "Is my money safe?"
Provided the money is in a UK-regulated bank or building society, it's protected under the Financial Services Compensation Scheme (FSCS) for up to £85,000 per person. Read more in the Are My Savings Safe? guide.
What counts as UK-regulated?
To be UK-regulated, a savings or current account needs to be registered as a deposit taker with the UK regulator, the Financial Conduct Authority.
Many banks are foreign-owned, such as Santander, which is owned by Spain's Banco Santander. However, Santander has UK headquarters and is authorised by UK regulators, so it is covered by the Financial Services Compensation Scheme.
However, some banks that offer products in the UK are not headquartered here – and rely on another country's deposit compensation scheme. A good example of this is Triodos Bank, which sometimes offers decent rates on fixed savings. But it is headquartered in Cyprus, so you'd be reliant on the Cypriot Government's compensation scheme if Triodos went bust.
It's rare that we feature accounts from non-UK regulated banks. But if we do, we will include a warning. If you want to read more about how savings are protected, please read Are My Savings Safe?
You pay tax at the same rate on savings as you pay on what you earn
Unless your combined earnings and savings interest are under the £10,000 personal allowance (it's higher for over-65s, see the Income Tax Checker), you'll pay tax on your savings interest (apart from cash ISAs and a limited number of other products).
Interest rates are usually quoted before tax, so basic rate taxpayers need to take 20% off the rate; for higher rate taxpayers it's 40% and for additional rate taxpayers 45%.
Ditch and switch after introductory 'bonus' rates end
These are temporary interest boosts to attract new customers. They're actually a good thing for many, as they effectively act as a minimum rate guarantee during the introductory period, promising you at least some interest.
But it is vital to diarise the end date and switch as soon as the bonus ends, so you don't languish on a rubbish rate. Always know your account's exact name and the rate it pays as some try to flog you a similarly named deal at bonus-end.
In a couple? Put savings in the name of the partner who pays less tax
If one of you pays a lower rate of tax than the other, it's financially worth considering whose name you save in (but ONLY if you trust them). Put it in the lower rate taxpayer's name and you'll get more interest. There's nothing stopping married couples or civil partners moving money between them.
If you're not married, there's no tax on giving your partner a 'gift' – though once the money goes across, be aware it becomes their cash, not yours. The only extra issue here would be inheritance tax. If the person who gave the cash dies within seven years the surviving partner may be charged tax.
Best BuysCurrent Account Savings
You used to need to avoid leaving cash languishing in a current account like the plague, such were the pitiful interest rates, but with some accounts, it's a different story. With savings rates so low, and current account providers desperate to seduce new customers, the top rates are in current accounts. But you often need to fully switch to get these rates, which means moving direct debits and standing orders.
Banks offer these as 'loss leaders', which means they throw money at you to get your current account business, after which they'll try to cross-sell you insurance and mortgages, where they make their big profits. But there's no obligation, just ignore the hard sell and max the current account interest.
Important info: Below, are our top picks. But there are alternative bank accounts that pay decent interest, see our Best Bank Accounts guide for them.
Earn 3% on up to £20,000
£2/mth fee, but cashback more than covers it for most
If you can save £3,000-£20,000, the Santander 123* current account smashes virtually all other savings accounts out of the water. There’s also up to 3% cashback on household bills. There are catches: you have to fully switch to it and there’s a £2/mth fee. But used right, you could make more than £550 a year in interest before tax, even with the fee, and another £115 in cashback.
You get 3% AER interest if you’ve £3,000 to £20,000, 2% if you’ve £2,000-£2,999 and 1% if you’ve £1,000-£1,999 (nothing below £1k). You get that rate on your entire balance.
You must pay in £500/mth within a month of your statement date to get interest and cashback.
You can earn 3% cashback on landline, mobile, internet & TV bills; 2% on energy; and 1% on water bills, council tax & Santander mortgages, provided you pay them by direct debit.
You need a minimum of two direct debits paid each statement month to get interest and cashback.
You can open two accounts, allowing savings of £40,000 at 3%, but the second must be a joint account. The same pay-in and direct debit rules apply to that account.
You’ll need to pass a credit check to get this account.
- Santander shares its £85,000 UK savings safety guarantee with Cahoot
Rate (paid on full balance): 3% AER variable if you've £3k-£20k; 2% AER variable on £2k-£2,999.99; 1% AER variable if you've £1k-£1,999.99; 0% under £1k | Fee: £2/mth | Min deposit: £500/mth to get the interest (within a month of your statement date) | Max deposit: None, but interest only paid on £20,000 | Access: Online, mobile, branch or phone | Interest paid: monthly | Withdrawal restrictions: Unlimited
How much cashback could I really earn? You get 1% cashback on water, council tax bills and repayments of up to £1,000/mth on Santander mortgages, 2% on bills from major gas and electricity suppliers, 3% on mobile, home phone, broadband and TV packages. Santander has a list of qualifying suppliers (though it's worth checking with them about your suppliers, even if they're not listed).
We crunched the numbers on how this stacks up for low, average and high bill payers. After the fee, we worked out low users would be up by £47 a year, average users £115 and high users £226, even before savings interest's taken into account.
The cashback works best for those who have a mortgage payment of around £1,000/mth with Santander – but even without the mortgage payment, anyone with high bills will be able to make money from this account, even considering the fee.
Our table details how the account works for low, medium and high billpayers
Santander 123 - cashback earned
|Type of bill||Cashback %||Annual cashback earned|
|Low bills||Typical bills||High bills|
|TOTAL after fee||
*Santander mortgage payment cashback is capped at £10/mth.
What will Santander charge me if I go overdrawn? Well, we hope if you're using this for savings that this won't be an issue. But, Santander's overdraft charges are middling. You'll get an interest-free overdraft for four months when you switch to the account. After that, it charges £1/day for arranged overdrafts, and £6/day for if you go over your overdraft limit. There's a maximum charge of £95 in any calendar month.
How does opening two accounts work? You can only open two accounts if one is a single and one is a joint account – think carefully before doing this, as if you join finances, your partner's credit record affects yours.
This is great if you have up to £40,000 in savings and/or you have a second home with separate bills.
You'll have to pay the £2/mth fee on both accounts but the interest gains could make this relatively insignificant. But you'll need still need to satisfy the £500/month pay-in requirement (you need to pay in from outside Santander). You must also have at least two direct debits set up on each account.
5% interest if you have £2,000 or less
TSB Classic Plus*
The TSB Classic Plus* current account is top if you’ve £2,000 or less to save, as you can get a whopping 5% AER. Unusually for a current account with perks, you don’t have to switch your own account, or set up any direct debits, you can just open this account as an extra.
You need to pay in £500 per calendar month and opt for online banking with paperless statements to get the interest.
If you’ve more than £2,000, you don’t get interest on anything above, so find another savings account for the extra, or check other bank accounts, such as Santander above.
You can have two accounts, allowing savings of £4,000 at 5%, but your second account must be joint. You’ll still need to pay in £500 a month to the second account too (and from an outside source, not from your first account).
You need to pass a credit check to get this account.
- TSB has the full £85,000 UK savings safety guarantee.
Rate: 5% AER variable on up to £2,000 | Min deposit: £500 per calendar month to get the interest | Max deposit: None, interest only paid on £2,000 | Access: Online, branch or by phone | Interest paid: Monthly | Withdrawal restrictions: None
How much will the overdraft cost me? Well, we hope as you're using this account for savings that you won't be using the overdraft. But, if you do, then TSB gives you a £25 buffer where you won't pay any fees or interest.
Go further into your overdraft, and it charges you 19.94% AER interest on your overdrawn balance, plus a £6 monthly usage fee for any month that you use your overdraft. If you bust your overdraft limit by more than £10, you'll pay £5/day under £25 over limit and £10/day for £25+ over limit, to a maximum of £80 a month. There's also a £10 unpaid item fee (max 3/day) if you try to make more payments when you're over your limit.
Other top-interest paying current accounts
It's not just these two accounts that pay large. Seven bank accounts (below) give you varying levels of decent interest, and the one you pick should depend on how much cash you're likely to be able to keep in your account.
If you really want to max the interest, there's a way to cycle it around several accounts to get interest from all of them. Some who've used this technique get £50 or £60 in interest a month, after tax. See the 5% savings loophole guide for a full how to.
Do note there are bank accounts which will pay you up to £150 to switch, which beat some of the accounts below in the first year. See a full list of accounts that pay you to switch.
The top current account savings interest
|For comparison, the top easy-access savings deal open to all pays just 1.4%.|
|In-credit interest (AER)||After basic tax||
interest /yr (1)
|Min monthly pay-in||How many can you have?|
|Santander 123||3% if you've £3,000-£20,000||2.4%||£450 (after fee)||£500||2 (2nd must be joint)|
|Club Lloyds||4% if you've £4,000-£5,000||3.2%||£157||£1,500||2 (2nd must be joint)|
|Bank of Scotland||3% if you've £3,000-£5,000||2.4%||£118||£1,000||3|
|Nationwide FlexDirect||5% on up to £2,500 for 1yr (2)||4%||£98 (yr1)||£1,000||2 (2nd must be joint)|
|TSB Classic Plus||5% on up to £2,000||4%||£78||£500||2 (2nd must be joint)|
|Tesco Bank||3% on up to £3,000||2.4%||£71||£750||2|
|Halifax||£5/mth (3)||£5/mth||£60||£750||2 (2nd must be joint)|
|(1) After basic tax if you always held the max balance+. (2) 1% after. (3) Paid regardless of balance, as long as you stay in credit. The £5 is classed as after having paid basic rate tax. So higher taxpayers will lose some of the gain.|
Best BuysEasy Access Savings
An easy access account does what it says on the tin. Usually. The main idea is you pay cash into them, and they pay you interest while the money’s in the account. and you can withdraw whenever you want.
When is an easy access account not easy access?
Some accounts limit the number of withdrawals you can make a year. Others won't pay interest in any month a withdrawal is made. So, while they're listed as easy access in that you can have your cash when you like, they're not all truly 'easy' access.
These penalties for withdrawals can have a big impact. For example, you might only withdraw £100, but you'd lose interest on the £100,000 in your account for the whole month.
The terms vary, so always know what taking out your cash will cost you, and if you think you may exceed what's allowed, go for a more accessible account.
What's the difference between an account with a bonus rate and one without?
Bonus rates are temporary interest hikes to attract new customers so the rate will DEFINITELY plummet after the term ends, so ditch and switch then.
They're actually a good thing for many, as they effectively act as a minimum rate guarantee during the introductory period, promising you at least some interest. Plus, in a period of dire rates, they at least offer some respite. The rate could still fall during the bonus period if the non-bonus element drops.
Clean rate accounts don’t pay a bonus. They are completely variable, so you could end up taking one out, and the provider drops the rate it pays on the account a couple of weeks later.
In our experience, all savings account rates – if you hold the account long enough – become rubbish accounts. But active savers can avoid this by shifting the cash to a better payer once they see their rate has dropped. This can happen at any time with any account that is not fixed.
Can I get a savings account that lets me withdraw cash from ATMs?
It's not common, but there are a few accounts that will let you do this. However, they don't tend to feature in best buy tables, so consider whether you're willing to trade a lower interest rate for easier access to your cash.
Here are the top accounts that give you a cashcard with your savings account...
|Product||Rate(AER)||Min/Max Balance||Max ATM withdrawal||Access||Protection|
|State Bank of India||1.25% AER variable||£500/£1 million||£500 per day||
|Yorkshire BS||1% AER variable||£1/£1 million||£250 per day||Online/ATMs||Shared|
1% AER variable (incl
0.9% bonus for 12mths)
|£500||£1,000 per day||
My building society has a better rate than accounts here. Why isn't it featured?
MoneySavingExpert.com is a national website serving England, Scotland, Wales and Northern Ireland. So we try to feature accounts open to everyone, which means you need to be able to open them online, or by phone or post.
Branch based accounts are more difficult, as – unless the account is offered by one of the big banks – it's unlikely that everyone will be able to reach a branch. For example, Skipton Building Society sometimes offers decent branch-based accounts.
But a person in Brighton would have to travel almost 40 miles to their nearest branch to be able to open it. Similarly, someone in Carlisle couldn't access branch-based accounts offered by Ipswich Building Society as there isn't one close by.
It is always worth looking at local building societies as they can occasionally have a corking branch-based account. But, because we're a nationwide site, we just can't feature them all.
How can I avoid paying penalties on withdrawals?
The simple solution is to study the terms of your account so you know exactly when you can make penalty-free withdrawals.
Sometimes you won't be able to, but at least withdraw just after interest has been paid so you don't lose out.
Top payer, you can save from £1
Post Office- 1.4% AER (incl 0.75% one-year bonus)
The Online Saver Account from The Post Office has a high bonus, so you get a good rate guarantee during the bonus period. But the rate will plummet in 12 months, so be ready to ditch it. You can open the account online only with just £1.
You can make unlimited withdrawals, without penalty.
The Post Office shares its £85,000 UK savings safety guarantee with Bank of Ireland UK.
Rate: 1.4% AER variable (incl 0.75% 1yr bonus) | Min deposit: £1 | Max deposit: £2 million | Access: Online only | Interest paid: Annually or monthly| Withdrawal restrictions: None
Top easy access payer, but it's only for those under 50 years old
Earl Shilton BS – 1.4% AER (incl 1.3% variable bonus till Feb)
The Progress Account from Earl Shilton pays a top rate of 1.4%, which includes a variable yearly bonus of 1.3%. Its bonus year runs from from 1 March to the end of Feb, which is also when it pays out your interest. Earl Shilton has said its likely to continue the 1.3% bonus from this March for another year, but it's best you check this. If the bonus has dropped, transfer your savings out to a better payer.
You can only open this account if you are aged over 18 and under 50, and you must open the account by post or in its one branch.
- If you're over 50 you can apply for the Post office or Coventry BS accounts paying the same rate.
- If your balance drops below £100 you'll lose the bonus rate.
- You can make six penalty-free withdrawals from the account per year – if you make more you'll lose the bonus.
- Earl Shilton has the full £85,000 UK FSCS savings safety protection.
Rate: 1.4% AER variable (incl 1.3% variable bonus) | Min deposit: £100 | Max deposit: £180,000 | Access: Post/branch | Interest paid: Annually in February | Withdrawal restrictions: Six/year from March to February
Top clean rate account (no bonus), you need £500 to open it
Coventry Building Society - 1.4% AER
The PostSave Easy Access account (issue 2) from Coventry BS has the same rate as those above but with more restrictions - the £500 min balance and withdrawal limits. The lack of bonus means the rate is less likely to plummet in a year, but bonus deals are also a minimum rate guarantee – as savings providers often secretly drop rates, bonuses give short-term protection.
You get 12 penalty-free withdrawals a year, any more attracts a fee.
You can apply online, but can only manage it by post, with withdrawals by cheque.
- You can't open this if you've previously had a Coventry PostSave account.
- Coventry shares its £85,000 UK savings safety guarantee with Stroud & Swindon BS.
Rate: 1.4% AER variable | Min deposit: £500 | Max deposit: £250,000 | Access: Post only | Interest paid: Annually or monthly | Withdrawal restrictions: 12/yr permitted penalty free
Got £85,000+? How to spread cash for safety
Remember, cash in all the accounts above is protected up to £85,000 per person, per financial institution. If you’re lucky enough to have more than £85,000, it’s best to spread savings across several different banks in case one gets into difficulty. We’ve picked a selection of the other top payers…
See list of other top paying accounts
|Provider||Rate (AER)||Min/Max Deposit||How to Open||Withdrawal Restrictions||FSCS Protection|
|ICICI Bank||1.4%||£1 (no max)||Online/phone||None, but must open linked account with ICICI Bank||Full|
|Tesco||1.35% (incl 0.6% bonus for 1 year)||£1/£1 million||Online||None||Full|
|Saga||1.35% (incl 0.85% bonus for 1 year)||£1,000/£1 million||Phone (over 50s only)||None||Shared with Bank of Scotland, Halifax, Saga, Intelligent Finance and AA.|
|Teachers BS||1.35%||£3,000/£350,000||Post/branch||After two, rate drops to 0.5%||Full|
Best BuysFixed savings
Most savings accounts are variable, so the rate can change both with the Bank of England's base rate or at the provider's whim – so to keep earning well you need to actively monitor accounts. Yet there is an alternative...
Fixed-rate savings give a guaranteed rate for a set period, and the best buy fixed-rate deals are usually higher than the best buy easy-access rates.
The big catch is you can't take your money out during that time, and you won't benefit if other rates rise in that period. Therefore, they're only suitable for those who are happy to lock cash away for the entire term.
4% Pensioner Bond alert
Government-backed Pensioner Bonds have now launched. There's a one-year bond paying 2.8% AER and a three-year bond paying 4% AER, both of which smash the fixed savings listed below. For full info, see the Pensioner Bonds guide.
Is now the right time to fix savings?
The Bank of England base rate, which is has a massive impact on savings rates, has been at its 0.5% historic low since March 2009. While we don't know when, it will rise at some point. So if you lock in for a long period now, you could lose out if rates rise during the term of your fix.
If rates do rise in 2015 (and no one has a crystal ball) by fixing you would've lost the flexibility to ditch and switch to a better payer, so it's important to go into fixed-rate savings with your eyes open and know the risks.
Of course, as long as rates stay low and you pick well, you will earn more in a fix in the meantime.
I know these are fixed savings, but can I access my cash?
No. With fixed savings, you lock away the cash in return for a better reward other than in extremely rare circumstances.
Think – for a second – about it from the bank’s point of view. If it knows it has your cash for three years, say, then it can lend that out for a three-year period safe in the knowledge you won’t demand it back. It has the certainty of holding your cash, and you have the certainty about the rate you get.
This certainty is the reason the rate is higher. And this is also the reason that easy-access savings tend to be poor payers in comparison.
How do I get paid interest monthly?
When using fixed-rate savings, you won't usually get paid monthly interest (though some accounts offer this). Therefore many who rely on interest earned from savings as an income stream don't fix, even though they pay higher rates. Yet there's a workaround.
Here's an example (ignoring tax for ease of explanation)...
You've £100,000 and can get 2% in a year-long fixed account and 1.5% in an instant access account. You'd like roughly £2,000 of interest from these savings to supplement your income.
Put £98,000 in the fixed account, and £2,000 in the instant access. Then spend the instant access money over the year, knowing the £1,960 interest earned in the fixed account will just about make up for it. Then you're effectively getting the higher rate and spending the interest.
This way you can grab the higher fixed rate accounts, but retain access to enough cash in the meantime. Remember, if you might need to get at the whole lump within the fixed term, this trick won't help and fixed rates may not be for you.
The best one-year fixed rates
The best two-year fixed rates
The best three-year fixed rates
The best four-year fixed rates
The best five-year fixed rates
The best seven-year fixed rates
Best Buys Ethical savings
Ethical savings accounts – where providers claim to behave ethically in terms of the environment, human rights and more – have jumped in popularity. Our main focus is always telling you the top savings rates, but to match demand we've worked with Ethical Consumer to list the top-paying accounts that also rate highly on their ethics.
When giving a bank or building society an ethical rating, Ethical Consumer looks at its track record on various environmental, social and political issues. For banks and building societies, this not only looks at how the business is operated, but also who their investors are, and what they invest in.
Ethical easy access savings
These easy access accounts are just the same as the ones above, but here we list only accounts from ethical providers.
Ethical easy access top pick: 1.4% AER
All the accounts below have the full £85,000 UK guarantee.
Ethical Rating 13.5/20
1.4% AER – 12 withdrawals/year, postal access
The PostSave Easy Access (2) from Coventry BS pays 1.4% on balances from £500, and allows 12 penalty-free withdrawals a year. Further withdrawals will be allowed, but you'll lose 30 days' interest for each. Coventry BS shares its £85,000 FSCS protection with Stroud & Swindon Building Society.
Ethical Rating 13.5/20
1.25% AER – Unlimited withdrawals,
The Easy Access Savings account from Kent Reliance pays a clean 1.25% AER rate and allows you to make unlimited withdrawals. You need to open the account with £1,000 but the balance can drop to £1 afterwards. The account can be opened and managed online, by post or in branch.
Again, these operate the same way as normal fixed savings, there's nothing special about what you have to do, but we only list ethical providers here.
Earn up to 2.5% AER fixed in an ethical bank
All the accounts below have the full £85,000 UK guarantee.
Ethical Rating 13.5/20
1.65% AER fixed for one year
The Kent Reliance one-year Fixed Rate Bond pays 1.65% AER on balances over £1,000. You can apply online, by post or in branches.
Ethical Rating 13.5/20
1.85% AER fixed for two years
The two-year Fixed Rate Bond from Kent Reliance pays 1.85% AER on balances over £1,000. You can apply by post, online or in branches.
Ethical Rating 12.5/20
1.9% AER fixed for three years
The Norwich & Peterborough BS e-Bond pays 1.9% AER from the date of account opening on balances from £1,000. You can apply online or by post. Interest is paid annually.
Ethical Rating 13.5/20
2.3% AER fixed for five years
The Fixed Rate Bond from Leeds BS pays 2.3% AER for five years on balances over £10,000. You can apply online, by post or in a branch. Interest is paid monthly and at maturity into a nominated account.
The Savings Calculator
This multifunctional calculator allows you to calculate how much interest you’ll be paid, how long you’ll need to save for something, or tell you how much you need to save each month to meet a goal.
Remember the impact of tax – choose the right level for your income. Also, you might get one rate now, but unless you’ve fixed your rate, it’s likely you won’t get the same rate in a year – so you may need to redo the calculation then.
The calculator assumes you put money in at the beginning of each month, so if this isn't how you do it, the answers will be slightly out. If you don't make regular deposits but put lump sums in, figure out the monthly equivalent for a rough answer. Feel free to play with the results to see how it impacts your savings.
What’s the top account for joint savings?
This is a commonly asked question but almost every savings account can be set up as a joint account, so actually the question should just be "what is the best savings account?", which this guide is set up to answer.
Are there savings accounts designed for my business?
If you have a business current account, the chances are it pays 0% interest. So any businesses with cash stored, even just to pay the taxman, are missing out on interest.
If you’re a sole trader, you’re likely to be able to save the businesses’ cash in a personal savings account. It’s best to do this, as you get the best rates. But if you’ve a limited company, then you will need to use a specially designed business savings account.
For more information on how you can max the interest for your business, and to see the current top rates, read the Small Business MoneySaving guide.
Haven’t you forgotten about inflation-linked savings?
We haven’t. But, sadly, there aren’t actually any accounts offering inflation-linked savings at the moment.
In fact, currently, most savings accounts (after tax) don't pay more than the rate of inflation. So you're actually losing money, as prices are increasing faster than your savings are growing.
Inflation-linked savings work in a similar way to fixed-rate accounts. Your money is locked away, but you're paid the percentage change in inflation. Usually there is also a fixed amount on top of this rate, so even if inflation becomes negative (deflation), you'd still get some increase on your balance over the term.
If and when rates rise enough that these products come back to the market, we will update our Inflation Linked Savings guide.
How does inflation affect my savings?
To really know how well your savings are doing, you have to look at it compared to the rate of inflation. Inflation is the measure of the rate at which prices increase, so if savings don't beat inflation after tax, they're losing you money.
Ensure your savings aren't losings...
A savings account that pays less than the rate of inflation is eroding your wealth. An example using simple numbers should help...
Imagine inflation is 5%...things costing £1 this year will then cost £1.05 next year
You have £1 in a savings account at 2% interest after tax ...by next year it will have grown to £1.02
Therefore saving's reduced your spending power by 3p/pound ...it's a 'losings', not a savings account.
Of course sometimes prices drop – as happened in 2009 – and you get negative inflation, known as deflation. This can sometimes be positive for savers.
What about when there's deflation?
Deflation is when the rate of inflation goes negative, meaning overall prices are lower than a year ago. This, or very low inflation, can actually be a boon to savers. Look at the contrast between inflation and deflation...
When inflation's high..Suppose inflation is at 5.0% and the best savings account pays 6.5% (so basic rate taxpayers get 5.2%). Sally Saver has £10,000 in her account, enough to buy a nominal 100 shopping trolleys of food/shoes/washing machines.
Calculating over a year for ease, her savings would grow to £10,520. Yet inflation means the shopping basket has increased in price to £10,500. Thus Sally's spending power has only increased by £20; her real interest rate was just 0.2%.
When there's a deflationary period....
Deflation has set in, with the inflation rate at minus 2%, while savings rates have further slumped too, offering just 1.5% interest after tax. Here, after a year Sally's ten grand's only grown to £10,150, yet deflation means the shopping trolleys now only cost £9,800.
This means she could buy them and have £350 left over, giving a real interest rate of roughly 3.5%. So even though her interest's plummeted, she's actually better off.
This has remarkable consequences. Far too many have a concrete savings mindset that shouts "don't spend your capital!" Yet in a deflationary environment that's too rigid; anyone living off savings interest would face huge cuts in their income, and not spending capital would actually be penalising yourself.
Personal rates of inflation do vary, yet if you're experiencing deflation, and need to spend from your savings pot, you can do so without hurting your savings pile. Take the capital out at the rate of deflation, and you're not losing anything as your purchasing power is retained.