With a Bank of England base rate of 5.25% now is an excellent time to review your cash savings and ensure you are maximising interest on deposits.
Earlier this month we experienced our 5th rate hike of the year, taking us to a base rate we’ve not seen since 2008. The base rate rises are designed to manage inflation, impacting how banks price their mortgage products and savings rates. Analysts suggest higher interest rates are here for the medium term, yet we’ve seen more falls than rises in interest offered since the most recent rate rise. Given this, we suggest ensuring your money is working efficiently for you on the banking level and encourage you shop around for the best easy access, fixed rate or notice savings accounts.
For those with the scope for regular monthly contributions to a savings account with no capital risk, many banks and building societies are offering preferable rates for a one year fixed. Skipton Building Society will pay 7.5% per annum for a one year fixed with maximum monthly contributions of £250. This account is only available to members of the building society from before May 2023. First Direct similarly offer 7% per annum for a maximum of £300 a month, fixed for one year. This may be an interesting option for those currently overpaying to relatively cheap mortgages in today’s terms, shifting the focus towards building a pot for repayment against the fixed period ending.
If you’re looking to save for a fixed period with a lump sum instead of monthly cash, Oaknorth Bank offer 6.04% on a one year fix, Charter Savings Bank 6.02% or Atom Bank 6%. Over two years Atom Bank offer 6.05%, Aldermore and Close Brothers Savings 6%. Finally for cautious deposit holders looking longer term, five year rates peak at 5.81% at date of writing with Cynergy Bank, or 5.8% with RCI.
Alternatively if easy access is required as part of your planning we have rates of 4.80% with Oxbury bank, 4.65% in Secure Trust and 4.63% in Shawbrook. These rates are subject to change, but offer complete easy access. Should you prefer branch based offers Yorkshire Building Society offer 4.35%. None of the larger high street banks come up as strong alternatives (not in the top 25).
Savers must bear in mind that higher interest from deposits results in higher risk of income tax on interest. Basic rate tax payers have a personal savings allowance of £1,000, versus higher rate at £500 and additional rate at £0. Premium bonds or cash ISAs are an alternative way to save when deposit savings is required, and you’ve used the savings allowance elsewhere. At present we have easy access cash ISA rates of 4.33% with Shawbrook, or one year fixed at Virgin Money for 5.76%.
It is important to highlight that given the Financial Services Compensation Scheme protection limit of £85,000, you should not breach this limit with one bank or building society. Spreading deposits across multiple banks is advisable, but not always logistically manageable. Therefore for those with a large sum designated for a specific purpose (house purchase, for example), National Savings and Investments (NS&I) offer the solution. Interest is lower than the rates introduced above, but all funds up to £2,000,000 are 100% protected. NS&I offer a monthly income on their Income Bonds of 3.59% annualised or 3.65% on their saver account. Premium Bonds offer a tax free growth option with equivalent interest of 4.65% paid as prizes.
All interest rates are accurate as of date of writing: 10th August 2023 and are subject to change or product removal.
Written by: Catriona McCarron
Date: 24th August 2023
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