Looking for the best return on your cash, but don't want too much risk?
Sadly, savings interest rates still remain low, thanks mainly to a combination of a low Bank of England base rate and the last of the cheap money available to banks and building societies via the Funding for Lending scheme.
While the Funding for Lending scheme money might be winding down, the Bank of England has indicated that interest rates are likely to stay low for some time. In addition, when they do rise, they are likely to rise slowly. So, if you prefer to have your savings in cash, now might be the time to look at getting a better rate by locking your money away for the short term.
It's also well worth looking beyond high street savings accounts to the likes of current accounts and peer-to-peer websites.
Let's look at all of these and more to see what rates are on offer.
Instant access savings accounts
The top rate of interest on an easy access account stands at 1.60% from the BM Savings Online Extra, though this includes a 1.1% bonus for 12 months so you'll need to move your money in a year. You also need £1,000 in order to open the account.
If you don't want to worry about a bonus disappearing after a year, there's the KentReliance Branch Easy Access account paying 1.50% on balances above £1,000, though as the name suggests you'll need a local branch.
If you haven't used your annual tax-free Cash ISA allowance (now £15,000), this arguably should be the first place you turn, unless you're a non-taxpayer. Disappointingly, short-term ISA rates have been falling in the past couple of months and some top ISAs have been closed.
If you want instant access to your cash then again BM Savings is top, with its Cash ISA Extra also paying 1.60%, with a 1.10% 12-month bonus, on balances above £1. You can also transfer in existing ISA balances.
If you can cope with giving 120 days' notice to get your cash, then you can get 1.80% from the Islamic Bank of Britain on a minimum of £250. Note that this is a Sharia-compliant account so the rate is an anticipated profit rate rather than an interest rate
In terms of fixed rate ISAs, there's 1.70% on offer for a year from the Post Office on balances over £500, while over two years you can get 2.10% from Virgin Money on balances over £1. Both accept transfers in.
The highest rate on offer is actually from a four-year fixed rate Cash ISA – 2.6% from Coventry Building Society, on balances from £1, though it doesn't accept transfers. The best deal over five years is 2.5% from Principality Building Society on balances over £500.
By giving up access to your cash for 120 days, you can earn a rate of 1.81% from Islamic Bank of Britain. The account can be opened with £250.
Fixed rate savings accounts
If you can afford to lock your cash up for a year, you can secure a rate of 1.90% from Kent Reliance Building Society on balances above £1,000. The Islamic Bank of Britain offers the same deal, while it also has an 18-month bond paying 2.02% and a two-year bond paying 2.32%.
Locking your money up for three years can secure a rate of 2.50% from Shawbrook Bank (minimum deposit of £5,000) or State Bank of India (minimum deposit of £10,000), while a four-year term can get you a rate of 2.85% from Shawbrook Bank.
Meanwhile the top five year bond comes from SecureTrust, paying 3.11% on balances over £1,000, while FirstSave pays 3.5% over seven years on balances over £1,000.
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. And you can have two accounts per person.
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 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 £2 a month fee on the account but you can earn cashback on some of your direct debits for household bills.
Tesco Bank's current account also pays 3%, but only up to £3,000. You need to pay in at least £750 a month or you'll face a £5 monthly fee.
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 savings
Peer-to-peer websites allow you to lend money to other people and potentially earn a greater reward for your risk.
However, your interest isn't tax free and your money isn't protected by the Financial Services Compensation Scheme, which is where the risk comes in.
RateSetter's five-year income account says it is paying an average rate of 5.8% over five years, with Lending Works offering 5.5% over the same time period. Meanwhile, Zopa is guaranteeing 5.1% over five years after fees.
You could also look at the likes of Funding Circle, which only lends to businesses, and Wellesley & Co, which offers bridging and development loans secured on property.
How they compare
So let's take a look at how the different options really stack up against one another.
|Account||Type||Gross interest rate||Net interest rate for basic rate taxpayer||Minimum deposit|
|RateSetter Five-year Income*||Five-year peer-to-peer savings||5.8%||4.64%||£10|
|Lending Works Five Year*||Five-year peer-to-peer savings||5.5%||4.4%||£10|
|Zopa Five Year*||Five-year peer-to-peer savings||5.1%||4.08%||£10|
|Nationwide FlexDirect||Current account||5%||4%||£1 (max: £2,500)|
|TSB Classic Plus||Current account||5%||4%||£1 (max: £2,000)|
|Lloyds Bank Club Lloyds||Current account||4%||3.2%||£4,000 (max: £5,000)|
|FirstSave||Seven-year fixed rate bond||3.5%||2.8%||£1,000|
|SecureTrust Bank||Five-year fixed rate bond||3.11%||2.48%||£1,000|
|Santander 123 account||Current account||3%||2.4%||£3,000 (max: £20,000)|
|Tesco Bank Current Account||Current account||3%||2.4%||£1 (max: £3,000)|
|Bank of Scotland Classic Account with Vantage||Current account||3%||2.4%||£3,000 (max: £5,000)|
|Shawbrook Bank||Four-year fixed rate bond||2.85%||2.28%||£5,000|
|Coventry Building Society||Four-year fixed rate ISA||2.6%||2.6%||£1|
|Shawbrook Bank||Three-year fixed rate bond||2.5%||2%||£5,000|
|Islamic Bank of Britain**||Two-year fixed rate bond||2.32%||1.86%||£1,000|
|Virgin Money||Two-year fixed rate ISA||2.1%||2.1%||£1|
|Kent Reliance Building Society||One-year fixed rate bond||1.9%||1.52%||£1,000|
|Islamic Bank of Britain**||120-day notice ISA||1.8%||1.8%||£250|
|Post Office||One-year fixed rate ISA||1.7%||1.7%||£1|
|BM Savings||Easy access cash ISA||1.6% (with 1.1% 12-month bonus)||1.6%||£1|
|BM Savings||Easy access||1.6% (with 1.1% 12-month bonus)||1.28%||£1,000|
*Not protected by Financial Services Compensation Scheme
**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.
Unfortunately, if you just want somewhere to put some money away in case of a rainy day, you're not going to be able to beat inflation unless you go for peer-to-peer savings. If you don't fancy that, you should still shop around for the best rate you can get.
This article is regularly updated with the latest rates
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