Top 5 places to save

If recent research is anything to go by, it would seem that record low savings rates haven’t deterred savers from putting money aside each month – in fact, Brits are now saving more than they were 10 years ago.

According to the latest Quarterly Savings Survey by National Savings & Investments (NS&I), Brits are now saving £98 a month, compared to £85 a month five years ago and £82 a decade ago.

And although interest rates remain low, there’s been at least some good news for savers as inflation has fallen below the Bank of England’s 2% target for the first time since November 2009. The Consumer Prices Index (CPI) measure of inflation fell to 1.9% in January from 2% in December.

But if you are saving on a regular basis, it pays to ensure you’re getting the best interest rate possible on your hard-earned cash.
Here’s a round-up of the five best places to save.

1. Cash ISAs

Your first port of call should always be a cash ISA simply because you won’t pay tax on the interest you earn. You can pay £5,760 into a cash ISA this tax year which means you only have until April 5 to use up your allowance. You can’t carry over any of this year’s allowance into next year as, from April 6, you’ll be given a brand new cash allowance of £5,940.

  • Those preferring to be able to access their funds should look at the Britannia Select Access Cash ISA which pays an annual equivalent rate (AER) of 1.75%. You can open it with £500 and transfer existing ISA funds in, but you can only make two withdrawals per year.
  • Alternatively, Metro Bank’s cash ISA pays 1.65% on balances of £1 or more and you can transfer money in. If you have a larger amount to transfer, First Direct pays 2.00% on balances of £40,000 or more.
  •  If you’re happy to tie up your funds for a year or more, the Britannia Fixed Rate Cash ISA pays a fixed rate of 2.05% until January 30, 2016. You’ll need to either deposit your full allowance of £5,760 or transfer in previous years’ balances. Note that if you have a current account with the Co-operative Bank or Smile, the rate rises to 2.20%.
  • If you’re prepared to lock away your money for three years, you can earn a rate of 2.40% AER with the Virgin Money Fixed Rate Cash ISA which only requires a deposit of £1 and also allows transfers in.

2. Fixed rate bonds

 If you’ve already used up this year’s ISA allowance, you’ll need to find another home for your savings. One option is a fixed rate bond. The advantage of a fixed rate bond is that the interest you receive is fixed for the term of the account. The disadvantage is that you’ll need to leave your money untouched for that time – and, unlike an ISA, interest earned will be taxed. The table below highlights some of your options.

Provider and account

AER

Term of bond

Minimum deposit

Access

Islamic Bank of Britain Fixed Term Deposit

1.90%

1 year

£1,000

Internet, post, phone, in branch

Post Office Growth Bond

1.80%

1 year

£500

Post

BLME Premier Deposit Account

2.80%

2 years

£50,000

Internet

ICICI Bank HiSAVE Fixed Rate Account

2.40%

2 years

£1,000

Internet

AgriBank Saver Bond*

3.35%

3 years

£10,000

Internet

BLME Premier Deposit Account

3.00%

3 years

£50,000

Internet

ICICI Bank HiSAVE Fixed Rate Account

2.70%

3 years

£1,000

Internet

*Your savings are not protected by the Financial Services Compensation Scheme (FSCS).

3. Easy access savings

If you’d prefer to be able to access your savings, an easy access account might be more suitable. But bear in mind the rate is variable so can change at any time. Also watch out for accounts which limit the number of withdrawals you can make each year.

Right now, the Britannia Select Access Saver pays 1.50% AER on balances of £500 or more. But you can only make four withdrawals per year. It can also only be operated by post, phone or in branch. So if you’d prefer an online option, the West Brom WeBSaveR pays 1.35% if you have a deposit of £1,000 or more.

4. Current accounts

An alternative option is to stash your savings in a current account. A number of current accounts are now paying higher rates of interest than many savings accounts and you’ll still be able to access your cash when you need to.

For example, the Nationwide FlexDirect Current Account pays 5.00% on balances up to £2,500, providing you pay in at least £1,000 a month. However, be aware the 5.00% rate is only valid for 12 months – after this time, it falls to 1.00%.

Alternatively, the Clydesdale Bank Current Account Direct pays 4.00% on balances up to £3,000 until March 2015, after which time the rate falls to 2.00%. You’ll need to pay in £1,000 or more a month.

Another option is the Santander 123 current account which pays 1.00% on balances from £1,000, 2.00% on balances from £2,000 and 3.00% on balances from £3,000 and up to £20,000. You’ll also earn cashback of between 1.00% and 3.00% on some of your household bills that leave the account. But be aware you’ll need to pay in at least £500 a month and pay a £2 monthly fee.

5. Regular savings

Regular savings accounts pay fixed rates of interest for 12 months, but while the rates can be fairly high, they do flatter to deceive as you’ll only earn the full amount of interest on the first month’s payment. After that, it drops every month so that the final month’s deposit will only earn one-twelfth of the interest figure.

However, they can still be a handy way to save as they require you to pay a set amount into your account each month and leave your funds untouched for 12 months – ideal for encouraging you to be more disciplined with your savings!

The First Direct regular saver, for example, pays a competitive 6.00% AER providing you pay in between £25 and £300 a month. However, you’ll also need to have a First Direct 1st Account to qualify – though you will receive £100 for switching to this current account.

Both HSBC and M&S Bank also offer regular savings accounts paying 6.00%, so long as you pay in between £25 and £250 a month. Again, though, you’ll need to have a HSBC Premier, Advance or Advance (Graduate) current account to qualify for the HSBC savings account, or an M&S Premium Account for the M&S regular saver.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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