Talk of the death of savings is overdone. Interest rates may be at historic lows, but there are still decent paying products out there. While the worst accounts pay 0.1%, ensure you match the top rates and you can earn over 3% easy access, or over 4.5% by locking your cash away.
This is a step-by-step guide to comparing and choosing the highest instant access and fixed rates, in safety, including daily updated best buys.
Where to start saving
Don't simply dunk your cash in the top savings account; depending on your circumstances there are a number of things which massively improve the returns on your cash first. These are explained fully in the Starting Saving guide, but here's a brief summary...
Do you have any debts?
If you have higher interest rate debts, e.g. most credit cards and loans, don't save. Instead, first pay these off as their interest cost is likely to massively dwarf the interest earned from saving. To find out if this applies to you, read the Should I Repay Debts? guide.
Do you have a mortgage?
While not as clear cut as loans or cards, in many cases the effective return from reducing mortgage debt is better than that from saving; though it's important to keep some cash spare. For a full guide, including a special calculator to help, read the Should I Repay My Mortgage? guide.
Have you opened a cash ISA this year?
A cash ISA is effectively a tax-free savings account each adult can put up to £3,600 a year in. If you haven't opened one this tax year (April to April), then it's the first place to put your cash. For more read the full Compare Cash ISAs guide.
Are you putting money aside each month rather than a lump sum?
Regular savings accounts are a specific product which earns you higher interest if you can pay £10 - £500 in every month. For more details and the best buys read the full Regular Savings Accounts guide.
Are you willing to lock the cash away for twelve months (or more)?
Fixed rate savings accounts guarantee you a specific rate of interest, for a set period of time (most commonly for one year). If you think you may need to get your hands on the money, then don't fix. However if you can sacrifice access for a while, then with savings rates likely to fall, fixed rates are a good way to ensure a decent interest rate. Read the Fixed Rate Savings section.
If you've done all of the above, and want somewhere safe to stow your cash, then you're in the right place...
A savings account is a place to dunk an unlimited amount of unused cash, to earn a higher rate of interest.
The difference between savings accounts and normal day to day bank accounts is they've less functionality, offering neither cheque books nor, with a few exceptions, cash cards.
What about inflation or deflation?
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 10%
... things costing £1 this year will then cost £1.10 next year
You have £1 in a savings account at 5% interest
... by next year it will have grown to £1.05
Therefore keeping cash in there has reduced your spending power
... it's a losings not a savings account.
Are you a loser? Check if your account pays less than inflation. View the full list.
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. To illustrate this, let's go to a high interest rate, high inflation time, like Summer 2008.
Imagine it's July 2008 (not too sunny then...). Inflation is at 5.0% and the best savings account pays 6.5% (ie. basic rate taxpayers get 5.2%). Sally Saver has £10,000 in her account, enough to buy a nominal 100 shopping trollies 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%.
Now flash forward to a time with full-on deflation.
Deflation has set in, with the inflation rate at minus 2%, plus 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 trollies 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.
How safe are your savings
Bank collapse was once easy to dismiss, then the credit crunch and global market turmoil hit. After the calamaties hitting Northern Rock, Bradford & Bingley, Icesave and Kaupthing, and that's just the UK alone, every sensible saver should ask “is my money safe?
The answer is quite simple. Provided your money is in a UK regulated bank or building society account, it’s protected under the Financial Services Compensation Scheme (FSCS) and here’s the golden rule.
£50,000 per person, per financial institution is guaranteed.
Sadly this is the simple face of savings safety; the exact rules are more complex involving how different banks are registered and what counts as a financial institution. It should also be remembered, if you did need to claim compensation, that does mean it's likely you won't have access to that cash for a few months. For full info read the full Are Your Savings Safe? guide.
How to maximise safety.
The techniques you adopt depend on the amount of cash you want to save.
- Over £50,000. For those with bigger savings, in the unlikely event a bank or building society went bust; don’t put more than £50,000 in any one institution; spread it around.
- Very large amounts. For those with very large amounts of savings (for example a house sale) this could lead to lots of accounts, even if you've too much to stick to the £50,000 limit for each one, the general rule of not having all your eggs in one basket still works.
- Less than £50,000. If you've less than £50,000 there's no problem in terms of protection. Yet if you were to have to claim compensation this takes time and meanwhile you wouldn't have access to your cash. Thus it's still worth considering spreading money across more than one institution.
For more info see the how to get 100% safety section of the savings safety guide.
This guide and best buys.
It's impossible to pick "which bank is in trouble?"; as well as the UK banks, we've seen great names of world banking like Goldman Sachs and Merrill Lynch in trouble.
Therefore the only solution for this site is that we'll report the top rates regardless, alongside explaining any 'protection oddities'. So far, world governments have reacted to protect their banks and no savers have lost money, and it's likely (though not certain) that will continue.
What to watch with savings
While savings are the simplest of products, providers have still managed to throw a few wobblers into the mix. There are a number of things to watch for...
Introductory ‘bonus' rates.
These are temporary interest hikes to attract new customers. For active consumers, as you can shift the cash to a better payer as soon as the bonus ends, it's no problem. However, easy-life seekers should avoid them.
Suck, slap and flog naming.
Some banks suck you in with a high rate, then later slap the rate down, and try to flog another similarly named account so you think you're still earning decent interest. Always know your account's exact name.
Withdrawal limits or penalties.
Some accounts limit the number of withdrawals you make a year. Others will not pay interest in any month a withdrawal is made. This can have a massive impact, for example you withdraw £100 but lose interest on all the £100,000 in your account for the whole month.
Quoting different interest.
Banks quote one of two different interest rates. The Gross rate is the flat amount paid; while the Annual Equivalent Rate (AER) takes into account interest compounded over the year. Check which rate you're being quoted and compare like with like. For a detailed explanation read about the difference between AER & Gross interest.
Also remember interest rates are usually quoted without tax, but for basic rate taxpayers 20% of the interest earned goes to the taxman; for higher rate taxpayers it's 40%.
BEST BUYS: The UK's Top Rate Savings
All the following accounts are either instant access allowing immediate cash withdrawal via a branch; or no-notice where, as it's an internet/phone account, in practice it takes a few days to get the cash in your hands. Use the Savings Calculator to see how much you’ll get. They also tend to be no-frills, so the rates are good but customer service may be limited.
There are two ways to beat these rates, though each have drawbacks...
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Regular Savers. You can earn up to 4.25% AER, fixed for a year, by using regular savers. These let you save up to £250 - £500/month, though you can't put large lump sums in one. Also, the money only moves slowly into the account, affecting how much interest you'll earn.
For the top accounts and how to use them best, read Regular Savings Accounts. -
Fixed Rate Accounts. If you're willing to lock cash away without access to it for a year or more, you may be able to boost your rate with a Fixed Savings Account.
Unless stated, all the accounts have full protection under the £50,000 per person, per institution rules. Though do check how institutions are linked and other notes in the safe savings guide.
The top paying accounts...
Finding an account that is totally 'clean' i.e. plays no tricks like introductory bonuses and withdrawal penalties, and still gives a top rate is getting harder. So it's crucial you read the pros and cons and pick the product that suits you best.
- Ulster Bank 3.21%. Needs £10,000. Inc 0.5% bonus, but restricted access.
The highest rate possible is with Ulster Bank's e-Savings Plus account, if you've £10,000 to £100,000 to save. It pays 3.21%, including a 0.5% bonus lasting six months.
However, if you withdraw money from the account the rate drops for that calendar month. In the first six months you'll only get 0.5%, after then you'll earn nothing, so only use if you don't need regular access to your cash and make any withdrawals the day after your monthly interest payment to minimise the impact. Also, if you save under £10k in the account, you receive a nominal 0.01% interest.
The interest rate quoted on Ulster Bank's website is 3% AER; this is the rate you'd get if the money stayed in there for a year, encompassing the bonus and non-bonus periods. If you ditch and switch (after the bonus drops), you can get the higher 3.21% rate. Yet remember 3% isn't a bad rate at the moment, although this may have changed in 6 months' time.
Ulster Bank is fully UK registered, meaning you get £50,000 protection from the UK govt. Though it's owned by the RBS family (inc. Natwest), it is registered separately, meaning you can have £50k here, and in another bank from the group, and it'd all be fully guaranteed. For full info read the full Are Your Savings Safe? guide.
Quick Stats: Rate: 3.21% variable, inc 0.5% bonus for 6 months. Min. Deposit: £10,000. Access: Online - Alliance & Leicester 3.15% AER. Online from £1. Inc 2.65% bonus.
If you want to save from just £1, Alliance & Leicester's* Online Saver (Issue 5), pays 3.15% AER, including a bonus which lasts until 2 August 2010. The bonus's size depends on your balance; amounts under £25,000 get a 2.65% bonus, tiered to a 1.65% bonus if you save over £250,000. Crucially though, whatever your balance, you get the 3.15% AER variable rate overall.Alliance and Leicester is part of the Santander group of banks (inc. Abbey, Bradford & Bingley & Asda). For now, it has its own lot of £50,000 Safe Savings protection, separate from the other Santander banks. However, this is likely to change by the end of 2010; all updates will go in the free weekly email.
Quick Stats: Rate: 3.15% variable AER, inc 2.65% bonus (tiered down to 1.65% if you save over £250k). Min. Deposit: £1. Access: Online - Birmingham Midshires 3.15% AER. From £1. Inc 2.65% bonus.
The top paying account if you want to save from just £1 is Birmingham Midshires' Telephone Extra , paying 3.15% AER including a bonus of 2.65% which lasts a year. As the name suggests it's a telephone only account and you can make unlimited penalty free withdrawals, and save up to £1 million.Birmingham Midshires is part of the HBOS group, and as such has the normal Safe Savings protection up to £50,000. However, it means that if you have money in another of the HBOS owned banks (Halifax, Bank of Scotland, The AA, Saga or IF), then you only get one lot of £50k protection between them.
Quick Stats: Rate: 3.15% variable AER, inc 2.65% bonus. Min. Deposit: £1. Access: Telephone - Investec 3.13% AER. Needs £25,000. Guaranteed good rate.
The High 5 account from Investec pays the average of the five highest savings rates in the market, currently 3.13% AER (as decided by price comparison site Moneyfacts), and it changes every Wednesday.
The catches are that you need to save over £25,000 and give three months notice to withdraw any money, so only open this if you dont need instant access to your cash. It may also be worth you checking the fixed savings accounts section. Quick Stats: Rate: 3.13% variable AER. Min. Deposit: £25,000. Access: Online - Intelligent Finance 2.85% AER. Top clean rate, online from £1.
The top clean rate available's with Intelligent Finance's iSaver, which pays 2.85% AER on balances from £1. It's an online-only account, and allows unlimited penalty-free withdrawals.
IF is part of the HBOS group, and as such has the normal Safe Savings protection up to £50,000. However, it means that if you have money in another of the HBOS owned banks (Halifax, Bank of Scotland, B Midshires, Saga or The AA), then you only get one lot of £50k protection between them.
Quick Stats: Rate: 2.85% variable AER. Min. Deposit: £1. Access: Online
Also, remember all these accounts have variable rates meaning providers can change them. If you want to fix your rate from the outset, you must be prepared to lock your cash away, see Fixed Rate Savings.
The best of the rest...
If you're prepared to shift your cash around to sneak even higher rates, or need more accounts as you're spreading cash for savings safety, here are some specialised alternatives.
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Top Accounts. If you need to spread big savings for safety
If you’re concerned about getting maximum safety on your savings, then, as explained in the Savings Safety guide, they're only protected up to £50,000 per person per financial institution. Therefore to keep amounts bigger than this safe you need to spread the cash around.
The following are the remaining top payers in the market (or use the next alternative; 100% protected savings accounts, at a lower rate).
Leeds BS 3.05% AER.
The next highest payer is Leeds Building Society, at 3.05% AER including a 1% bonus until 31 July 2010. The minimum balance allowed is £100 (up to £1 million). It must be opened and operated online, and allows penalty-free withdrawals.
ING Direct 3% AER.
ING Direct* pays new customers 3% AER from £1 including a guaranteed 2.5% bonus which lasts twelve months. After a year, the rate drops to 0.5%, so make sure you ditch and switch at this time. You are allowed unlimited withdrawals, and there's no maximum balance.This online and telephone account is NOT protected by the UK compensation scheme but the Dutch scheme instead, which covers the first €100,000 (c. £86,000). For full info on how the protection works, read the foreign banks section of the Are Your Savings Safe? guide.
Coventry Building Society 3% AER.
If you have over £1,000 to deposit Coventry BS's* Poppy Save account is giving 3% including a 1% bonus for a year, operated by post only. Although you can only make four withdrawals per year, if you make any more you will incur penalties.
It's called Poppy Save because every year they donate 0.25% of the average amount saved to the Poppy Appeal charity.
Principality BS 2.85% AER.
The next highest rate to spread your savings around is from Principality BS's* eSaver at 2.85%. This online-only includes a 1.2% bonus lasting for the first twelve months, and is paid on all balances from £1.
In April 2009, financial strength rating's agency Moodys substantially downgraded a heap of banks and building societies, including Principality (read Building Society Downgrades news) meaning it's more important to be watchful about not going beyond the £50,000 government guarantee. For full info read the Are Your Savings Safe? guide.
Egg 2.8% AER.
The savings account from Egg* pays 2.8% AER, with 1.55% of this a bonus lasting for 12 months. This rate applies for new Egg customers with balances from £1 to £1,000,000.
Although Egg and Citibank are part of the same company, they are separately UK registered with the FSA, meaning you get £50,000 of UK FSCS protection with each bank.
Sainsbury's 2.8% AER.
If you want an online clean account Sainsbury's is paying 2.8% AER (variable), and lets you save from just £1,000 up to £500,000. Access is restricted but still possible; you're allowed three penalty-free withdrawals per year; make a fourth and the rate plummets to 0.75% AER.
If you want this account act quick, as it's scheduled to end on 31 July. Sainsbury's is part of the HBOS stable of banks, yet as it's a fully independent UK subsidiary for savings safety sake, you're covered up to the full £50,000 per person per financial institution.
Scarborough BS 2.76% AER.
Scarborough Building Society's Investment Direct account pays a clean rate of 2.76% AER, and guarantees to stay at least 1.26% points above the Bank of England base rate until May 2010. It's a telephone only account, and can be applied for on 0845 458 4522.
Despite the name, this is a normal instant access savings account, with no risky investment side. You need a minimum balance of £1,000, and the maximum is £500,000. Scarborough merged with Skipton BS in early 2009, and all new savings in either are protected by the same, shared £50,000 FSCS protection (full details in the Savings Safety guide).
- 100% protected savings accounts. For more than £50,000 in one place.
If you've a lot of cash, over the £50,000 amount, and the safety factor worries you, there are a few places that give 100% guarantee on savings, though you will sacrifice the rate earned.
UK Government Owned: The best paying Northern Rock account is the eSaver (issue 2) which pays 2.5% AER including 1% bonus for a year, on balances from £1 to £250,000. With NS&I the best option is its Direct ISA, again though the rate is nothing to shout about.
Buy a tax certificate. Those who are self employed can pay tax early by buying what’s called a tax certificate for your liabilities in advance. These do pay interest, though substantially less than a top savings account. Yet there’s nothing safer than knowing your tax bill is sorted.
Pay off debts. To reiterate the information at the start of this guide. Paying off debts or mortgages, is one extremely safe use of your money. See the Should I Repay Debts? guide.
Big UK Banks' Top Paying Savings Accounts
To help spread savings, it's worth examining the top accounts at some of the big UK institutions.
Barclays.
Barclays e-savings Reward pays 1.26% AER on amounts from £1 to £2 million, in months when you make no withdrawals, and 0.85% in months when you do make withdrawals. Both of these include a 0.75% bonus lasting a year.HBOS (Halifax/Bank Of Scotland).
Bank of Scotland's Instant Access Savings Account pays 0.5% AER on amounts from £1 and promises to never be lower than 0.50% below Bank of England base rate until 1 Jan 2012.HSBC.
HSBC's* Online Bonus Saver pays 0.75% AER when you don't make a withdrawal (0.25% AER when you do) on amounts from £1 to £50,000.Lloyds TSB.
Lloyds TSB eSavings pays from 1.6% AER with £1 up to 2.5% for amounts above £10,000. All rates include a 1.50% bonus for the first 12 months.Nationwide.
If you have a FlexAccount with Nationwide you can get 2% AER with the e-Savings Plus account, as long as you make less than 4 withdrawals, on savings between £1 and £500,000.
In April 2009, financial strength rating's agency Moodys substantially downgraded a heap of banks and building societies, including Nationwide (read Building Society Downgrades news) meaning it's more important to be watchful about not going beyond the £50,000 government guarantee. For full info read the Are Your Savings Safe? guide.NatWest.
Natwest e-savings offers 1.1% AER when saving more than £1.RBS.
RBS's Direct Saver has a rate of 1% AER with £1 up to 1.5% for amounts above £50,000.- Over 50s Account. Alternative account for the over 50s
Coventry Building Society.
For the over 50s, Coventry Building Society's eSave account pays 3.25% for balances from £1 (up to £250,000). The rate is fixed for 12 months and you can make unlimited penalty-free withdrawals. This is an online account, and is apparently available for a limited time.
In April 2009, financial strength rating's agency Moodys substantially downgraded a heap of banks and building societies, including Coventry (read Building Society Downgrades news) meaning it's more important to be watchful about not going beyond the £50,000 government guarantee. For full info read the Are Your Savings Safe? guide. -
Top Savings with Cash Machine Access.
The easy way to assure yourself 24-hour access to your cash, is to get a savings account that gives you a cash machine card and allows free withdrawals from any Link machine.
Yorkshire Building Society.
The Yorkshire BS Internet Saver, with optional cash card, pays 2.1% AER. You only need £1 to open it and can save up to £1 million.
In April 2009, financial strength rating's agency Moodys substantially downgraded a heap of banks and building societies, including Yorkshire (read Building Society Downgrades news) meaning it's more important to be watchful about not going beyond the £50,000 government guarantee. For full info read the Are Your Savings Safe? guide.
Bank of Scotland.
If you don't want an online account, the top clean non-web account for this is Bank of Scotland's Instant Access account, also with optional cash card and from £1, paying 0.5% AER. -
Fancy looking locally? Local building societies can have special accounts
All the above rates are available to anyone, yet some small building societies occasionally offer special rates to people who live in the local area, or to existing members; it's always worth checking yours.
How to guarantee a continually top rate
Most savings accounts are variable, meaning the rate can change both with the Bank of England's base rate and as providers change their competitive stance. It's important to regularly monitor your account's rate and if it plummets, ditch and switch. Yet there are some alternatives to monitoring interest rates...
Fixed rate savings give a guaranteed rate for a set period, but you can’t take your money out during that time.
Therefore, they're only suitable for those who are happy to lock cash away for the entire term. It is also very important to understand that the longer you fix for, the more you are RISKING the fact that an unpredicatable future means this could be a bad choice. If interest rates were to increase rapidly, you would’ve lost the flexibility to ditch and switch to a better payer. Plus if the savings safety status of the institution changes, it'd be more difficult to get your cash out.
Yet currently, that's balanced out because there are some decent rates available. This is because many lenders are desperate to get hold of your cash so they can lend it out at high rates during the credit crunch. Plus with fixed rates they get surety that you won’t want it back until a defined time, thus allowing them to plan their lending strategies better.
Some fixed accounts require you to set up a 'feeder' account, normally a non-fixed savings account, in order to get the money in. If that's the case, it's often speedier to do it at a bank you already have an account with.
The Best One Year Fixed Rates
- Ruffler Bank 3.76% AER. Online, need to save £10,000+
Small bank Ruffler's 1 Year Fixed Rate Bond pays a table-topping 3.76% AER interest, provided you're saving £10,000 or more, up to £500,000. You have to download an application from from its website, then the account is operated by post.
You may not have heard of it, but Ruffler is a full member of the UK's Financial Services Compensation Scheme, giving it the normal £50,000 per person protection.
- Abbey 3.75% AER. Online, need to save £25,000+
Behind this, Abbey's* One Year Bond pays the next highest interest at 3.75% AER if you save over £25,000 in it. The money needs to be paid via an Abbey eSaver* account, which can be opened when applying for the fixed account.
Abbey is a full UK subsidiary of Spanish bank Santander, and shares a licence with Bradford and Bingley, Asda and Cahoot so you only get £50k worth of protection across all four of those institutions. For full details read the What counts as a bank? section of Savings Safety guide.
- Chelsea BS 3.7% AER. Branch or Postal account, from £1,000
If you've got less than £10,000 to save, and are happy with an account operated by post or in branches, Chelsea BS's 1 Year Summer Fixed Rate Bond is 3.7% AER for balances of £1,000 or more.
For anyone wanting an online option for lower savings, the top rate's with Norwich & Peterborough's E-Bond, which pays 3.65% AER for balances of £1,000 or over.
The Best Two Year (ish) Fixed Rates
By saving for a bit longer, the rates available can jump. Always remember that the longer you lock cash away for, the more of a chance there is that rates will rise while your cash is untouchable. Currently, many economists predict rates will stay low into 2010, but after that who knows.
- Newcastle 4.5% AER. Postal, from £5,000.
- ICICI 4.35% AER. Online, from £1,000
The UK subsidiary of Indian owned bank, ICICI*, is paying 4.35% AER on its two year fixed rate account, for balances over £1,000, with no maximum. ICICI is a full UK subsidiary and thus in the event the bank went bust, you have the full protection up to the usual £50,000 per person, per financial institution.
Some concerns were raised over its parent bank's stability, yet our policy is to include ALL the top rates. Remember that saving over £50,000 in ANY one institution constitutes a potential risk. If you are considering putting money in, ensure you read both the foreign banks section of the Are Your Savings Safe? guide and Martin's specific ICICI: How Safe is it? blog.
If you know someone else who already has a HiSave account, you both may be able to get a £20 bonus. Get them to refer you to it, then when you put £1,000 in any of its Fixed Rate Bonds, you'll get £20 each.
- B'ham Midshires 4.25% AER. Online, from £1.
If you have less to save Birmingham Midshires has a two year fixed rate bond which pays 4.25% AER and is operated online. You can save from £1, up to a £10 million maximum.
Birmingham Midshires is part of the HBOS group, and as such has the normal Safe Savings protection up to £50,000. However, it means that if you have money in another of the HBOS owned banks (Halifax, Bank of Scotland, The AA, Saga or IF), then you only get one lot of £50k protection between them.
- The AA 4.01% AER. Online from £500, 16 month fix.
If you want to lock your money away for just over a year, The AA's Internet 16 month Fixed Rate Savings Account pays 4.01% AER from just £500, up to £5 million. As the name suggests, you open and operate it online.
The AA is part of the HBOS group, and as such has the normal Safe Savings protection up to £50,000. However, it means that if you have money in another of the HBOS owned banks (Halifax, Bank of Scotland, B Midshires, Saga or IF), then you only get one lot of £50k protection between them.
- Abbey 4% AER. Over £25,000, 18 month fix.
Save over £25,000 in Abbey's* 18 Month Fixed Rate Bond and it pays 4% AER until January 2011, up to a maximum of £2 million. Watch out though as lower amounts of savings get reduced interest rates.
Abbey is a full UK subsidiary of Spanish bank Santander, and shares a licence with Bradford and Bingley, Asda and Cahoot so you only get £50k worth of protection across all four of those institutions. For full details read the What counts as a bank? section of Savings Safety guide.
The top rate's with Newcastle BS's Fixed Postal Bond pays 4.5% AER from £5,000, if you lock the cash away until 3 August 2011. You can save up to £500,000, and the account is applied for and operated by post. No withdrawals are allowed, and you cannot transfer from an existing Newcastle BS account.
It also offers a 3 year fixed account, which pays 4.4% AER, but this can be beaten (see below).
In April 2009, financial strength rating's agency Moodys substantially downgraded a heap of banks and building societies, including Newcastle (read Building Society Downgrades news) meaning it's more important to be watchful about not going beyond the £50,000 government guarantee. For full info read the Are Your Savings Safe? guide.
The Best Three Year Fixed Rates
It's possible to push the rate up even further, by sacrificing access to the cash for longer. Yet here you are taking a bigger gamble on rates staying low for a significant period; if UK interest rates recover between now and 2012, you could lose out as your cash is stuck at this rate.
- Yorkshire/Clydesdale Bank 4.5% AER. Online, if you've £2,000+.
Sister banks Yorkshire and Clydesdale both pay 4.5% AER interest, if you lock the cash away in a 3 Year Term Deposit Account. You need to be saving at least £2,000, and the account is applied for and operated online, or by phone/branch.
Both institutions are owned by the National Australia Bank, but are protected fully under the UK FSCS. However, only £50,000 in total between the two banks would be protected, as they count as the same institution. For full details read the What counts as a bank? section of Savings Safety guide.
- ICICI 4.35% AER. Online, from £1,000
The UK subsidiary of Indian owned bank, ICICI*, is paying 4.35% AER on its three year fixed rate account, for balances over £1,000, with no maximum. ICICI is a full UK subsidiary and thus in the event the bank went bust, you have the full protection up to the usual £50,000 per person, per financial institution.
Some concerns were raised over its parent bank's stability, yet our policy is to include ALL the top rates. Remember that saving over £50,000 in ANY one institution constitutes a potential risk. If you are considering putting money in, ensure you read both the foreign banks section of the Are Your Savings Safe? guide and Martin's specific ICICI: How Safe is it? blog.
If you know someone else who already has a HiSave account, you both may be able to get a £20 bonus. Get them to refer you to it, then when you put £1,000 in any of its Fixed Rate Bonds, you'll get £20 each.
- B'ham Midshires 4.35% AER. From just £1
If you have less to save, Birmingham Midshires has a three year fixed rate bond which pays 4.35% AER and is a postal account. You can save from £1, up to a £10 million maximum.
Birmingham Midshires is part of the HBOS group, and as such has the normal Safe Savings protection up to £50,000. However, it means that if you have money in another of the HBOS owned banks (Halifax, Bank of Scotland, The AA, Saga or IF), then you only get one lot of £50k protection between them.
- Use the net to compare top rates
For other lengths of fixed rates, and a full list of fixed rate savings accounts use the MoneySupermarket* and Moneyfacts comparisons, in conjunction with the Savings Safety guide to examine the protection for any accounts. However, with these it's crucial you double check the rates on the banks' own websites before applying, as the comparison tables are NOT continually updated.
Highest guaranteed rates...
If you want surety that even if you don't check your saving rate, you're safely getting at least a reasonable deal, one route is to pick a high paying account that guarantees to match or beat either the Bank of England base rate, other top accounts, or the Retail Price Index – the UK's measure of inflation.
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Good Rate Guarantee
The High 5 account from Investec pays the average of the five highest savings rates in the market, currently 3.13% AER (as decided by price comparison site Moneyfacts). This ensures your rate will be at or near the best possible, though it will never be the top rate available. To get this rate you need to save over £25,000 and give three months notice to withdraw any money so only open this if you dont need instant access to your cash. It may also be worth you checking the fixed savings accounts section.
Do you live off savings interest?
When using fixed rate savings, you won't usually get paid monthly interest. Therefore many who rely on interest earned from savings as an income stream don't fix, even though they're paying higher rates. Yet there's a work-around.
Here's an example (ignoring tax for ease of explanation)...
You've £100,000, and can get 5% in a year long fixed account and 3% in an instant access account. You'd like roughly £5,000 of interest from these savings to supplement your income. Put £95,000 in the fixed account, and £5,000 in the instant access. Then spend the instant access money over the year, knowing the £4,750 interest earned in the fixed account will make up for it. Then you're effectively getting the high 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 though, 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 Savings Calculator
Below is a special calculator designed to tell you all you need to know about your savings. Simply enter all the details, remembering to choose the level of tax you pay. For the most accurate answer use the AER (Annual Equivalent Rate) which should be listed on your statement. Obviously as most accounts' interest rates are variable, the calculations will change if the rate does, but it should give you a good idea.
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 ever-so-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.
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