The accounts paying most interest right now
Looking for the best return on your cash, but don't want too much risk?
Sadly, savings interest rates still remain low. However, the new Personal Savings Allowance (PSA) introduced on 6 April 2016 will give most ordinary savers a boost.
The PSA allows basic rate taxpayers to earn up to £1,000 and higher rate taxpayers to earn up to £500 in savings interest tax free. Additional rate taxpayers do not have a PSA.
The change means instant access, notice and fixed rate bonds will be a lot more lucrative, and providers will stop taxing savings interest at source.
It's also well worth looking beyond high street savings accounts to the likes of current accounts and peer-to-peer websites as the PSA applies to the interest you can earn from them as well.
Let's look at all of these and more to see what rates you can get and where the best place to put your cash is.
Instant access savings accounts
The top rate of interest on an easy access account is currently 1.45% which you can get from RCI Bank with its Freedom Savings Account . You'll need £100 to open an account.
Notice accounts
If you give up access to your cash for 120 days you can get a rate of 1.81% from Al Rayan Bank, which you can open with £250.
Cash ISAs
While the PSA has effectively made all savings accounts tax-free you should still consider using your tax-free ISA allowance (currently £15,240 for 2016/17) to save.
That's because any money you put into an ISA will stay tax free, even if the interest you earn grows. With the PSA as the interest you earn beyond the £1,000/£500 limit is taxed at your marginal rate.
The best rate on an easy access ISA is 1.65% available with Punjab National Bank on deposits from £1.
Lock your money up for a year with Al Rayan Bank and you'll get a rate of 1.90%. You'll need £1,000 to open the ISA.
Punjab National Bank offers the best rates over two years paying a rate of 1.9%. It's also best over three years, with a rate of 2.30% and five years, with a deal offering 2.5%, both of which can be opened for £1,000.
Fixed rate bonds
Al Rayan Bank offers the top one-year bond at 1.9%. It also has the best deal over two years with a rate of 2.32%. Both accounts require £1,000 to open.
The State Bank of India offers the best deal over three years with a rate of 2.55%, and over five years with a rate of 3.1%. You'll need at least £10,000 to open an account though.
For smaller deposits starting from £100 Fidor Bank offers the best deal over three years with a rate of 2.45%, while Punjab National Bank is best over five years with a rate of 2.75%.
Current accounts
Current accounts continue to trump all the top savings accounts at the moment, for smaller balances anyway.
TSB's Classic Plus account pays 5% permanently on balances of up to £2,000, providing you credit the account with £500 a month . There's also cashback available on contactless payments.
Nationwide's FlexDirect account pays 5% interest on balances up to £2,500 for the first 12 months. The only condition is you need to pay in at least £1,000 a month.
Lloyds Bank is offering the Club Lloyds account, which pays 4% on balances between £4,000 and £5,000, providing you credit the account with £1,500 a month and set up two direct debits from it.
If you don't want to move your money around, Santander's 123 account pays 1% on balances over £1,000, 2% on balances over £2,000 and 3% on balances from £3,000 to £20,000. You need to pay in £500 a month, and set up at least two direct debits. There's also a £5 a month fee on the account but you can earn cashback on some of your direct debits for household bills, which can help cover that.
The Tesco Bank Current Account also pays 3%, but only up to £3,000.
And Bank of Scotland's Classic Account with Vantage pays 3% on balances of between £3,000 and £5,000 so long as you pay in £1,000 a month. You can have up to three accounts too.
Peer-to-peer
Peer-to-peer websites allow you to lend money to other people and potentially earn a greater reward for your risk.
However, your money isn't protected by the Financial Services Compensation Scheme, which is where the risk comes in.
RateSetter's income account is paying an average rate of 6.1% over five years and 3% over three. And over one year you can get a whopping 3.8%.
Lending Works is currently offering rates of 6.2% over five years and 4.7% over three years, while Zopa is averaging 5% over five years.
There's also QuidCycle Lump Sum Accounts offering rates of 6.1% over five years and 5.2% over three years.
If you don't want to lock your money up for as long, all of these companies offer shorter lending periods, albeit with lower interest rates.
Account | Type | Interest rate | Minimum deposit |
Five-year peer-to-peer lending | 6.2% | £10 | |
Five-year peer-to-peer lending | 6.1% | £10 | |
Five-year peer-to-peer lending | 6.1% | £500 | |
Three-year peer-to-peer lending | 5.2% | £500 | |
Five-year peer-to-peer lending | 5% | £10 | |
Current account | 5% (one year only) | £1 (max: £2,500) | |
Current account | 5% | £1 (max: £2,000) | |
Three-year peer-to-peer lending | 4.7% | £10 | |
Lloyds Bank Club Lloyds | Current account | 4% | £4,000 (max: £5,000) |
One-year peer-to-peer lending | 3.8% | £10 | |
State Bank of India Fixed Deposit Account | Five-year fixed rate bond | 3.1% | £10,000 |
Three-year peer-to-peer lending | 3% | £10 | |
Current account | 3% | £3,000 (max: £20,000) | |
Current account | 3% | £1 (max: £3,000) | |
Bank of Scotland Classic Account with Vantage | Current account | 3% | £3,000 (max: £5,000) |
State Bank of India Fixed Deposit Account | Three-year fixed rate bond | 2.55% | £10,000 |
Punjab National Bank Fixed Rate ISA | Five-year fixed rate Cash ISA | 2.5% | £1,000 |
Punjab National Bank Four-Year Cash ISA | Four-year fixed rate Cash ISA | 2.35% | £1,000 |
Al Rayan Bank Two-Year Fixed Rate | Two-year fixed rate bond | 2.32%** | £1,000 |
Punjab National Bank Three-Year Fixed Cash ISA | Three-year fixed-rate Cash ISA | 2.30% | £1,000 |
Punjab National Bank Fixed Rate ISA | Two-year fixed rate Cash ISA | 1.90% | £500 |
Al Rayan Bank Cash ISA | One-year fixed rate Cash ISA | 1.90%*** | £1,000 |
Al Rayan Bank Fixed Term Deposit | One-year fixed rate bond | 1.90*** | £1,000 |
Al Rayan Bank 120-Day Notice Account | 120-Day Notice Account | 1.81% | £250 |
Punjab National Bank Variable Cash ISA | Easy access Cash ISA | 1.65% | £1 |
Easy access savings account | 1.45% | £100 |
*Not protected by Financial Services Compensation Scheme
**£5 monthly fee
***Anticipated profit rate
The account you go for will probably be determined by the amount you have to save, your attitude to risk and whether you want instant access to your money.
What's clear though is that if you want a better return on your money in the longer term, with a bit more risk in some cases, you're better off looking beyond traditional savings accounts right now.
