Interest rates on hold - how to get the most from your savings
Written on 10 November 2015
Savers had little to cheer about last week when the Bank of England decided to keep interest rates at their record low level. But a concerted effort by the so-called challenger banks to increase their market share means saving rates are being pushed up and you can get an inflation-busting return if you’re prepared to look around.
Best paying savings accounts
A quick glance at best buy savings account tables shows that many of the top paying accounts are offered by savings institutions that are relatively new or unknown in the UK such as RCI Bank, Charter Savings Bank, Paragon Bank and Metro Bank.
For example, the highest paying easy access account is offered by RCI Bank which pays 1.65% on a minimum balance of £100.
If you don’t need access to your money in the short-term better rates are available. For example, Metro Bank, which was launched five years ago, offers a one-year bond which pays 2.10% and an 18 month bond paying 2.40% on a minimum balance of £500. And if you can tie up your cash for longer higher rates are available. For example, Agri Bank’s five year bond pays 3.15% (minimum investment £5,000).
The new kids on the block are also offering some tempting rates on cash ISAs which pay out tax-free interest.
For example, Virgin Money is paying 1.56% on its instant access cash ISA but if you are prepared to tie up your money until 24 November 2016 it offers a fixed rate of 1.81%. Shawbrook Bank is also offering a healthy rate of 1.80% on its one year fixed rate bond but requires a minimum investment of £5,000.
High interest current accounts
Current accounts which pay interest or offer cashback can also be an option although you can only earn interest on a relatively small amount of savings.
These accounts typically require you to pay in a minimum amount each month (such as your salary) and you earn interest on this cash. There is usually an upper limit on the balance you can earn interest on.
For example, TSB’s Classic Plus account pays 5.0% interest on balances up to £2,000 and you must pay in at least £500 a month. Nationwide’s FlexDirect account also offers 5% interest, the minimum funding each month is £1,000 and it pays interest on balances up to £2,500.
While investors may not be familiar with many of the new challenger banks many of them are well established abroad. And as long as the provider is covered by the Financial Services Compensation Scheme (FSCS) your money is just as safe as it would be with one of the traditional high street names.
The FSCS covers savings institutions regulated by the UK’s Financial Conduct Authority and means that the first £85,000 (£75,000 from 1 January 2016 of your savings are protected if anything goes wrong. See our guide on investor protection for more details.
Other places to put your money
As well as savings account there are other options open to investors who want to potentially earn a better return on their money. In general, the more risk you are prepared to take the higher the potential returns. But there are different types of risks which you need to consider – see our guide on understanding investment risk for more on this.
Other types of investments you might like to consider include stock market investments (but don’t forget the value of your investment can go down as well as up) such as individual shares, stocks and shares ISAs and stock market funds. You might also like to consider peer to peer lending.