Where to earn an easy 5% on your savings

Desperate for a better return on your cash? Look beyond savings accounts this year.

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Where to earn an easy 5% on your savings

Savings rates continue to fall as thousands of providers slash their top deals.

Thankfully, there are still a few decent spots to stash your cash - if you know where to look.

But before we reveal the best options, it's worth flagging up two key recent developments that should change the way you think about savings.

A new savings landscape

The first is the Personal Savings Allowance (PSA).

Launched last April, 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.

This means instant access, notice and fixed rate bonds are now far more lucrative as providers will stop taxing savings interest at source.

The second change is the dramatic rise of current accounts as a viable home for your savings.

While banks have traditionally offered terrible rates of interest on in-credit current account balances (and many still do!), a growing number are looking to lure new customers by offering rates that beat even best buy savings accounts.

And, as they're also included in the PSA, you get the same tax benefits to boot.

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 1.02% 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 90 days you can get a rate of 1.32% from Secure Trust Bank, which you can open with £1,000.

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 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 available with National Savings and Investments (NS&I) which offers a rate of 1% on deposits from £1.

Lock your money up for a year with Al Rayan Bank and you'll get a rate of 1.09%. You'll need £1,000 to open an account.

Over two years the best Cash ISA is from Aldermore, which is offering a rate of 1.20% on balances from £1,000.

Several banks offer the best rate over three years of 1.25%, including Virgin Money and Aldermore.

Paragon Bank wins out over five years, offering 1.60% with a minimum deposit of £500.

Fixed-rate bonds

Atom Bank offers the best one-year bond with a rate of 1.40%. It also offers the top two-year account at 1.60%. Both can be opened with a deposit of £50.

Ikano Bank is best over three years with a rate of 1.75% on deposits from £1,000.

Ikano Bank is also best over four years with a rate of 1.95% and a £1,000 deposit.

Over five years, the top pick is Atom Bank with a rate of 2.05% and a £50 deposit.

Current accounts

Current accounts continue to trump all the top savings accounts at the moment, at least for smaller balances.

TSB's Classic Plus account pays 3% on balances of up to £1,500, 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 2% on balances between £1 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 spread your money around, Santander's 123 account pays 1.5% on balances of up 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 and have two direct debits set up. You can have up to three accounts too.

Compare high-interest current accounts