Life hasn’t been easy for savers looking for high interest accounts over the last few years. But the difference between the best and the worst savings accounts is still significant.
The good news is that since April 2016, the introduction of a new Personal Savings Allowance (PSA) has meant that basic-rate taxpayers can earn £1,000 of savings interest without the taxman taking a slice, and higher rate taxpayers can earn £500. Additional rate taxpayers are not eligible for a PSA.
And the fact you can shelter up to £15,240 from the taxman in cash through an Individual Savings Account (ISA) this tax year is another godsend – as you get to keep every penny of the interest you earn.
Here’s our guide to the best high interest accounts that you can use to grow your savings pot.
Cash-ISAs allow you to earn interest tax-free so, it makes sense to max out your ISA allowance before stashing money into a standard savings account.
Since July 1, 2014 you have been able to hold all of your ISA allowance in cash. ISAs have become even more flexible since April 6, 2016. If you hold cash in an either an investment, cash, or Innovative Finance ISA, you can take this cash out of your account and put it back in within the same tax year without this affecting your annual allowance. Not all ISA providers may offer this flexibility, so check with yours before withdrawing any money.
The difference between the best and the worst savings accounts is significant
If you have already used up your ISA allowance, you might think a standard savings account is the next best place for your nest egg.
But these days, the best interest rates can actually be found on some current accounts. Some pay up to 5.00% on smaller balances of a couple of thousand, or 3.00% on balances of up to £20,000.
You usually have to switch your current account completely to benefit from these deals, but the introduction of the Current Account Switch Service in September 2013, means the process is now hassle-free and can be carried out in seven working days.
Easy access accounts
Also known as no-notice accounts, easy access deals give you instant access to your cash whenever you want it. That makes them a great home for emergency cash that you can call on to pay for a broken boiler or car repairs, for example.
The bad news is that interest rates on easy access accounts are generally pretty low – particularly if you don’t shop around for the best deal.
Better-than-average rates are usually reserved for internet-only accounts, while some employ introductory bonuses to boost the advertised rate – but which run out after the first 12 month.
Even if there isn’t a bonus, rates tend to be variable so keep a close eye on what the account is paying and switch deals if it’s no longer any good.
Some accounts that call themselves easy access may also limit the number of withdrawals you can make each year without losing interest – so check this too.
With notice accounts, you generally have to wait between 30 and 120 days to withdraw your money. This means they won’t be suitable if you need access to your cash in a hurry – as the terms state you will lose interest if an emergency withdrawal is made.
While notice accounts tend to offer higher interest rates than those that provide instant access to your money, this isn’t always the case – so check out easy access rates too before applying.
And as most easy access accounts have variable, rather than fixed, rates, it’s just as important to monitor your returns and switch if the deal is no longer competitive.
Regular savings accounts
Regular savings accounts, which require a set monthly payment – often between £25 and £300 – are a great option for building up savings.
But while rates are higher, the overall benefits are limited as you will only earn interest on the amount in the account as it builds up. You will also be penalised for missing a payment and you won’t have access to your money for the typical12-month term.
Fixed-rate bonds are savings accounts that offer a fixed interest rate on your cash for a set period of time, say between one and five years.
The pay-off for giving up access to your money by paying into an account of this kind is that you should receive a higher rate than you will on an easy access or notice account.
And, generally speaking, the longer you’re prepared to lock your cash away for, the higher your return will be.
You will have to pay a penalty should you need to access your money within the term, though.
As most fixed-rate bonds do not allow you to add to your balance, they are also only suitable for people with a lump sum to invest.