If you’re a saver, you should always be looking at ways to make your cash work harder – whether that’s moving banks or opening new accounts.
Many savers leave their cash in low-paying accounts, something which has prompted the Financial Conduct Authority to launch a fresh probe into the savings market. It says that providers often let customers leave their cash in poor-value accounts and is looking to address the issue. Meanwhile, what actions can you take to earn a better rate?
Beating inflation
With inflation still high, very few savings accounts can maintain the value of your money. Your best bet for a return that beats inflation is a regular saver, though the top-paying accounts require a linked current account to open them, and these products can only be used for a year.
The First Direct Regular Saver is the most generous account. It pays 5% interest on cash deposited, and you can deposit between £25 and £300 each month.
Four other accounts also pay 5% interest, but with more limited monthly deposits permitted: Nationwide Flexclusive Regular Saver (allows deposits of £1 to £250), HSBC Regular Saver (£25 to £250), M&S Bank Monthly Saver (£25 to £250) and Santander 123 Regular eSaver (£1 to £200).
Current accounts also offer good rates of interest. For example, the Nationwide FlexDirect account pays 5% interest on balances up to £2,500 for the fi rst year, but this drops to 1% thereafter. You must deposit at least £1,000 each month into the account to earn this 5% rate of interest.
Elsewhere, the Tesco Bank Current Account offers 3% interest on balances up to £3,000, while TSB Classic Plus pays 3% interest on balances up to £1,500. However, the Tesco account has a £750 minimum pay-in and requires three direct debits to be set up, while TSB requires a £500 monthly pay-in to receive the headline interest rate.
Lock for longer
Among savings accounts that are not linked to current accounts, you can get higher returns by locking your cash away for a longer period. My Moneywise Best Buy is the Vanquis Bank Five Year Savings Bond, which pays 2.56% on balances of £1,000-plus. However, once you’ve deposited your cash, you will be unable to access it until 2023.
This compares to the top one-year savings bond – the Investec Bank One Year Fixed Term Deposit – which pays 1.85%, but only on balances of £25,000 or over.
The same applies in the Cash Isa market, with the Charter Savings Bank Five Year Fixed Rate Cash Isa paying 2.25% versus the 1.5% offered by the Virgin Money Fixed Rate Cash Isa (Issue 348). The Charter Savings Bank account can be opened with £1,000 or more, while Virgin Money requires just £1.
However, savers should be aware that we are now in a rising interest rate environment. The next Bank of England base rate rise is expected in the early summer, so savings rates are likely to rise. By holding off a few weeks, you may be able to seal a better rate. But if you’re putting aside new money, remember there’s a deadline of 5 April to use your £20,000 Isa allowance for the 2017/18 tax year.
A model idea
Savers who are willing to open multiple accounts can earn even more on their cash. The Moneywise model savings portfolio uses a pair of current accounts, a linked regular saver and a fi xed-rate one-year bond so you can maximise your returns.
A saver with a £10,000 portfolio can earn more than 3% by spreading their cash across multiple high interest accounts. Read our full guide on the Moneywise savings portfolio.
FEATURED PRODUCT
Shawbrook Bank Easy Access Cash Isa (Issue 2) 1.25%
This account pays 1.25% to savers and must be opened online. You must have a balance of £1,000 or more.
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