Best high interest accounts

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Choosing the right high-interest savings account can make a big difference to your savings pot

High-interest accounts are one of the best ways to make some extra money, while you concentrate on keeping up with the best interest rates on the market. There are a number of options to choose from, whether you opt for a regular ISA savings account or more complicated investments like fixed-rate bonds.

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What is a savings account?

A savings account lets you deposit money and earn percentage-based interest on it on a regular basis.

The rate of interest you earn depends on several factors:

  • The amount of money you have saved in the account
  • The interest rates the bank provider is offering
  • How regularly you deposit money into the account
  • How often your interest is compounded

Who needs a savings account?

A savings account suits anyone who has some extra cash lying around after all their necessary expenses are paid. Any cash deposit will earn you some interest as long as you can meet the minimum amount necessary to open the account. To get the most competitive rates however, make sure to check out what’s on offer.

Which banks have the best savings interest rates?

Interest rates vary depending on the bank provider, the deal in question and the stock market. The list of high-interest competitors is always changing, so it’s a good idea to head to our comparison tool to find out what accounts offer the best returns.

How does interest work?

Interest rates generally vary between accounts and providers, which is why it’s worthwhile shopping around for the best deal to make sure you get the most out of your savings.

You are always entitled to a personal savings allowance, introduced in 2016, which governs how much interest you can earn on your savings without having to pay tax on it. This is decided by your income.

  • Basic-rate taxpayers, who have an income of £37,500 or less, can earn £1,000 worth of interest tax-free
  • Higher-rate taxpayers, who earn £43,501 and above, can receive £500 of interest without having to pay tax on it
  • Additional-rate taxpayers, those earning more than £150,001, are unable to benefit from the scheme

The money that you earn in interest will itself earn interest, which is called compound interest. The more often the interest is added to your savings, the more efficiently you’re saving. So if your compounding occurs daily, you benefit from the most effective form of compounding.

Regular savings accounts

A regular savings account requires you to deposit money into an account each month, often for a fixed term of a year. While interest rates on such accounts tend to be higher than the base rate, they come with a number of limitations on how you manage your savings. These include:

  • A limit to how many withdrawals you can make
  • A minimum deposit you have to make each month
  • Possible penalties when you can’t make the monthly payments
  • A possible drop in the interest rate after a set period of time
  • Interest is only earned on the amount in the account as it builds up

Savers who are looking to drip-feed money into their account will find a regular savings account a great way to get the most out of their savings pot.

Which savings account is the best for you?

Depending on your saving habits, there are a variety of saving solutions for you to try.

Different accounts cater to different priorities, taking into consideration the amount of money you have to spare, whether you need ready access to your funds, and how much you can and want to commit to a long-term plan.

Current accounts: Current accounts can sometimes earn you a higher interest rate than ISA accounts. Some pay up to 5% on smaller balances of a couple of thousand, or 3% on balances up to £20,000.

You usually have to switch your current account completely (from one provider to another) to benefit from these deals. Thanks to the Current Account Switch Service (CASS), this process is now hassle-free and can be carried out in just seven working days.

Notice accounts: If you have steady earnings coming in and are able to keep up with a long-term commitment of monthly deposits, a no-notice account may be the perfect option for you. You can benefit from the high interest rates, and when the fixed period of high interest comes to an end, you can upgrade to a better high-interest current account. This is suitable for savers who won’t need to access their savings, as these accounts mean it can take one to five months to do so.

Easy-access accounts: If a long-commitment seems a little daunting, on the other hand, an easy-access account usually pays slightly more interest than current accounts, and you won’t have to deposit money on a regular basis. You can simply put in a lump sum and add to it when you can.

Cash ISAs: These allow you to earn higher rates of interest tax-free, so it makes sense to max out your yearly ISA allowance (£20,000) before stashing money in a standard savings account.

If you hold cash in either an investment, cash or innovative finance ISA, you can take it out of your account and put it back in within the same tax year without it affecting your annual allowance.

Fixed-rate bonds: A fixed-rate bond is a savings account that offers a fixed interest rate on your cash for a set period of time, often between one and five years. The payoff for giving up access to your money is a higher rate of interest than you would expect on either an easy-access or a notice account.

Generally speaking, the longer you’re prepared to lock your cash away for, the higher your return will be. As most fixed-rate bonds do not allow you to add to your balance, they are most suitable for people with a lump sum to invest.

What are introductory bonus rates?

The introductory bonus is a short-term spike in interest on a savings account which usually lasts three to five months, starting when you sign up. These often have the best interest rates you’ll find in the market. Introductory bonus rates are used to encourage customers to open a savings account with a particular bank provider.

Opening a new savings account with a bonus rate will boost your savings, so if you need a short-term savings plan, this will get you off to a good start. Once the bonus rate is finished however, interest rates will drop – at which point it’s a good idea to move your deposit to another more competitive option.

There are a few things to consider before you decide on your savings bonus:

  • Make sure the bonus interest rate is competitive compared with standard rates on other savings options
  • Be aware of the minimum amount you need to deposit into the account to sign up
  • Know the stated length of the bonus-rate term
  • Look out for any extra fees that may be unique to the deal

What’s the difference between an account with a bonus rate and one without?

A savings account without a bonus pays a standard base rate, while an account with an introductory bonus will add an additional rate on top of the standard base for a set period of time.

Accounts with an introductory bonus revert to regular savings accounts with standard, variable interest rates once the term is over. The bonus is a short-term incentive and once the bonus period comes to an end, it’s no different from a regular savings account. In fact, the interest rates offered by such are likely to be less good, so keep an eye out for better options once your account drops back to the base rate.

How can they pay such a high interest rate?

With a few restrictions in place, the bank provider usually doesn’t lose out. These include a cap on how much you can save as well as how long a decent interest rate lasts. These financial products are used for advertising and to attract more customers, and they’re priced for value.

How does inflation affect savings?

If your savings increase at a slower rate than inflation, you will actually lose money, as your money ends up being worth less.

In times of higher inflation, your money decreases in value over time, and any interest rates you might be earning are therefore worth less.

Inflation – in very simple terms – is usually caused when goods become more expensive to produce, or when people want to buy more products or commodities than are currently being made. It is measured by something called RPI – the retail price index.

You can identify signs of inflation by spikes in the prices of

  • Commodities
  • Air travel
  • Petrol
  • Oil

Compare high-interest savings accounts

Navigating your way through the many types of savings accounts, interest rates and benefits can be a little overwhelming. But arranging your finances so you get the most out of your money makes a big difference to your savings pot.

Find out where your savings account ranks in interest rates and make sure it’s competitive by heading over to the MoneySuperMarket comparison tool. We take into account your preferences and habits and provide you with products that meet your needs which have the most to offer.

Look through current accounts, cash ISAs, fixed rate bonds and more and find the right fit for your savings habits. We’ll ask you a few questions about your savings goals and preferences and give you the best options.

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