Best savings account deals as inflation ticks higher

UK households are always looking for ways to make their money go further amid the cost of living crisis, and savings accounts can help.

Savings accounts took a hit as the Bank of England (BoE) cut interest rates to 4%, with most lenders dropping their best deals in tandem with Threadneedle Street’s reduction. However, consumers can still find UK savings accounts offering rates above inflation.

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.

The primary inflation measure, the consumer price index (CPI), rose to 3.8% in the 12 months to July, well above the BoE’s 2% target.

Mark Hicks, head of active savings at Hargreaves Lansdown, said: “Inflation notching up again risks leaving high street savings accounts in the shade. If you have a branch-based easy access account with a high street giant, then unless you’re a premier customer, you’re making less then 2% on average, so you’re being horribly outstripped by rising prices, and your savings are losing spending power with each passing month.

“It’s more important than ever to shop around and consider online banks and savings platforms, because there are still plenty of accounts leading the pack, way ahead of inflation.

“In fact, the uncertainty around future rate cuts mean the savings market has risen marginally since the last Bank of England announcement earlier this month.”

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.

“For money you don’t need for a specific period, it’s … well worth considering locking in a fixed rate deal now. You can get fixed terms around 4.5% – far beyond any expectations for inflation,” said Hicks. “This will be fixed for the full period, so even when the Bank of England starts cutting rates again, your deal is secured.”

Up until recently savers could get a market-leading 5% for three months but now the best on the table is 4.63% from Aldermore via the Prosper platform. You need at least £10,000 to open the account and can invest up to £1m.

Prosper is a “savings marketplace”, which means that it does special deals with banks to offer savings accounts, often at higher rates than are available direct with that bank.

JN Bank has a five-year deal paying 4.52%, where you can invest from £100 to £500,000, with interest paid annually and at maturity.

Santander (BNC.L) via Prosper pays 4.5% for a three-month account that requires £10,000 to open.

Online banks typically offer higher rates than traditional bricks-and-mortar branches, which translate into better returns, giving you a more efficient way to save and reach financial goals.

If you prefer to go with a familiar name, the high-street lenders have slightly lower offers, but are still above inflation.

Tesco (TSCO.L) Bank offers the highest rate among high-street lenders, with a one-year fixed-rate savings account that pays 4.21% annually, with the minimum balance required being £2,000. However, you can invest up to £5m.

NatWest (NWG.L) has a fixed-term savings account offering 3.8% for one year. The minimum deposit is just £1 and interest will be paid 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.

Chase has dropped its 5% deal but is still leading the table with a new 4.75% offer that you can access with only £1. New customers can open its linked easy-access saver within 31 days of opening the account.

The WestBrom BS pays 4.55% with only £1 minimum to access. The interest rate will go down to 1.90% gross p.a./AER if you take money out more than four times per year.

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.

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

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

GB Bank has a 65-day product via Prosper that pays 4.52% for which you’ll need £10,000 to access.

Kent Reliance pays 4.45% on a 60-day notice account that can be opened with £1,000.

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 has just launched its Biscuit account, which 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.

The Co-operative Bank has a 7% deal for existing customers. Fixed for one year, you can save up to £250 per month and can skip months without penalties.

Every deal mentioned here is covered by the Financial Services Compensation Scheme, so you are protected up to £85,000 or double that if it’s a joint account.

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Best savings account deals as inflation ticks higher

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