Cash savings rates have been dreadful over the past few years, with many accounts offering rates as low as 0.01% AER. (That’s equivalent to 1p per year for every £100 saved. Don’t spend it all at once!)
This low-interest environment has punished many with a frugal mindset, but most obviously those who’ve kept a large proportion of their hard-earned wealth in a cash savings account.
However, while accounts boasting pitiful rates still abound, the savings market is – finally – starting to turn, thanks to the Bank of England raising its base rate in the face of high inflation.
The Bank Rate has already risen three times this year. It currently stands at 1%. And it’s expected to go higher, which should lead to further competition among the banks for savers.
So where should you stash your cash today? Let’s look at the different types of accounts out there, and at which accounts pay the highest rates of interest.
Easy access savings
Easy access is the most popular type of savings account. These accounts pay you interest and give you instant access to your cash. This means you can add or withdraw money as often as you like.
Easy access is typically the best type of account to go for if you know you’ll need access to your cash within a year or so.
They’re also a good option if, like me, you just don’t want to lock away your cash.
Do note that interest rates on easy access accounts are typically variable, meaning they can change in future. However some easy access accounts will pay a temporary fixed bonus for a year.
Picking the ‘best’ easy access account is tricky. That’s because there are a number of accounts out there that all work slightly differently from one another. What’s more, the highest rates are only available if you’re willing to open a new bank account.
Here’s the lowdown.
- Highest easy access rates (but you’ll need to open a current account). If you’re willing to open a bank account, then Virgin Money currently offers the highest easy access savings rate. To get it, you must open its ‘M’ Plus current account and then manually open its linked savings account. Virgin’s savings account offers 1.56% AER variable interest, payable up to £25,000.
- If Virgin isn’t for you, then app-only Chase Bank pays a slightly lower 1.5% AER variable via its linked savings account. You can save up to £250,000 in this account, though you should probably always limit yourself to the £85,000 Financial Services Compensation Scheme limit.
- Highest straightforward easy access rate. If you’d rather avoid having to open a new bank account or deal with temporary bonus rates, Ford Money pays the highest, straightforward easy access rate available. Its Flexible Saver pays 1.3% AER variable interest. You can save as little as £1.
Regular savings
Regular savings accounts enable you to put money into them on a monthly basis. Usually the headline rates on these accounts trump easy access deals, but there are limits as to how much you can save into them each month. Those limits are often quite stingy too!
Some accounts only allow you to hold them for a year or so. Others restrict your ability to withdraw cash. And the highest-paying accounts are often tied to you also running a specific current account. However there are a few decent options available open to all.
Here are a few of the top accounts:
- Highest regular savings rate for current account customers. If you have a First Direct current account then you’ll have access to its table-topping regular savings account. It pays 3.5% AER fixed interest for one year and you can put in up to £300 per month. However, if you close the account within a year, the interest rate drops to just 0.1%.
- Don’t have a First Direct account? NatWest (3.3%), Santander (2.5%) and Nationwide (2.5%) also offer competitive regular savings accounts for their current account customers.
- Highest open-to-all account. Coventry Building Society offers a competitive regular savings account paying 1.65% AER variable interest for one year. Plus, you don’t have to be a Coventry customer to open it. You can save up to £500 per month, though if you want to close the account early, a 30-day interest penalty applies.
Notice savings
Notice savings accounts are just like easy access accounts, but with an added rule that you must give your provider notice before making a withdrawal.
Generally, the longer the notice period, the higher the interest rate.
I like notice accounts. They provide a way of beating easy access rates without the requirement to lock away cash for a long period of time.
Here’s my pick of the top accounts:
- Highest 120-day notice account. If you’re happy to give roughly four months notice before withdrawing cash, DF Capital’s 120-day notice account pays 1.7% AER variable interest.
- Highest 90-day notice account. If you’d prefer a shorter notice period, then DF Capital also has a 90-day notice account paying a slightly lower 1.6% AER variable.
Both accounts enable you to save from £1,000.
Fixed savings
To get yourself the highest interest rate on your cash, fixed savings accounts are the way to go.
With these accounts you must lock away cash for a set period of time. In return, you’ll earn a higher interest rate than the easy access alternatives.
Generally, the longer the fixed period, the higher the rate of interest.
However while I think fixed savings accounts can work for some, I tend to to steer clear. Rightly or wrongly, I value being able to access my savings whenever I want, so I prefer easy access offerings.
In contrast, those who most value a guaranteed interest rate will find what they need here.
With fixed rate accounts it’s really important to appreciate the risks of opting for an account with a long fixed period. If savings rates rise in future, you won’t be able to benefit until your term expires.
Here are the longest one- and thee-year fixed accounts available right now.
- Highest one-year fixed savings account. Cynergy Bank offers a one-year fixed savings account paying 2.57% AER fixed. You must have at least £10,000 to open it.
- If you’ve less than £10,000 to save, then Investec pays 2.4% AER fixed for one year. You can save from £5,000.
- Highest three-year fixed account. Cynergy Bank pays the highest three-year fixed account at 2.9% AER. You need £10,000 to open it.
Is opening a savings account a good idea with high inflation?
It’s hard to ignore inflation right now. Latest Government figures tell us that the Consumer Price Index stands at 9%. Many expect it to go higher this year.
While there’s no sure way to hedge against inflation, we know for sure that none of the savings accounts above are paying anything close to it.
However having some of your wealth in cash is not necessarily a bad idea, if only for diversification. Cash is among the very few assets that’s delivered a positive nominal return in 2022 so far.
Remember, even if your cash is set to earn significantly less than inflation, it’s still worth bagging yourself the highest interest rate possible.
How much of your portfolio do you currently keep in cash? Have you moved your money recently? I’d love to hear in the comments below.
I’ve been reducing the amount of cash I hold over the last few months (DCAing into my stocks and shares ISA). I’ve made a loss on that decision, to date, but I still feel pretty good about it.
At the start of my FIRE journey (3ish years ago) I did the standard thing of building up 6 months of living expenses in cash. But after more reading and thinking, I’m increasingly of the opinion that in my position (a single person with no dependents, a very stable job and no car, property or similar that would be expensive to repair/replace) that’s unneccesarily conservative.
I would like to buy a house/flat at some point, which complicates matters, but as I live in London, that’s rather a long term aspiration, and depending on exactly what the housing market/my career end up doing, I might decide renting long-term makes more sense anyway. So it doesn’t seem to make sense to keep extra cash just because it might end up being needed for a deposit at some point in the future, when that’s guaranteed to lose out to inflation
Some of us can get the highest easy access rate without opening a new current account. My 50+ year old former Yorkshire Bank current account qualifies for me to get the Virgin M Plus Saver.
Banks/Bankers, particularly large ones, piss me off with their hypocrisy and contempt – paying themselves ridiculous and inappropriate bonuses, an enormous discredit to capitalism. I believe this “red tooth”attitude to performing an essential service, rather than act, as they should as privileged “honoured upholders” of financial standards, could well eventually discredit the whole system and collapse not just capitalism but democracy – remember BRIC’s, effectively if not in name, all are moving towards tyranny. They were identified as the future!
I really think banks’ advertising should be regulated and their behaviour severely audited and examined, their interest is solely themselves – not even shareholders in my experience! So I will not use them and moved to Starling a “challenger”, app only account. I particularly like the fact they only act as a current account and seek, it appears, to do just that – efficiently. Their service is v. good in my experience.
I felt I wanted some cover with an high st. operator since Starling limit transfers to £10,000 per day and there are “rules” to drawing cash through the Post Office ( and they , again, have proven to be entirely dishonourable and contemptuous of their historic past and reputation)!
This left me, as far as I could see Nationwide, as the sole remaining national mutual, so I opened a current account there as well. Remember those institutions who managed the mortgage market with standards!
To get back to the specifics of your article, Nationwide have a Triple Access Account, allowing one to save as much as one wishes/draw what one wishes but limited to withdrawals 3 times per annum or lose interest earned. Irritatingly one does have to reopen each year but it is the best place I have found for reserve cash I may need as the forces of tyranny descend! You may laugh, as 2 World Wars and now Ukraine show, the defence of liberty and democracy lies with the might of the USA alone, whatever opinions one may have of that society. In the last FT Weekend Arts Section, there were reviews of a number of books examining the widening divisions of this bastion of democracy – is this to be a new dark age, a new decline and fall?? I urge above all, whatever one’s politics, one should recall the fragility of democracy through history and not facilitate the forces of tyranny and repression again – last time it took over a millennium to recover something approaching “freedom”!
Whatever happened to “my word is my bond”, where are those who value honour and justice above all and especially short term gain! ESG – just pure and now proven hubris. What we need are people across all aspects of society to think and moderate before speaking or acting and it is the especial responsibility of those in positions of power – financial as well as political. We all need to support those who value and try to follow some basic decency. All are human and faulty but constant seeking short term gain and “end justifies the means” approaches, need to be hounded out of town rather than applauded and followed – IMHO!!
Reputation not presentation needs to be regarded, again, as paramount.
No love for Premium Bonds at 1.4%? Sure, it’s really only 1% if you assume you’re only ever going to win £25 chunks on £50K, but it’s still a solid option.
@Dan — Cash will usually lose out against inflation in the medium to long-term, clearly so in circumstances like today. But as I’ve said before, everything loses out to inflation if the return isn’t sufficient to compensate. For example, the US markets have been down 15-30% in 2022. They’re losing out to inflation, too. 😉 Even government bonds are well behind inflation this year, in nominal terms let alone real.
Obviously in the long-term you’d expect US equities to deliver positive real (after inflation) returns. My point is just that one shouldn’t look at asset classes in isolation. Even if you’re not buying a flat after all, holding some cash can make sense in a diversified portfolio. It can buffer your wealth at times like this, and you can redeploy the cash into buying cheaper assets after falls, which gives it an optionality strength.
@Andrew — Premium bonds are not a savings account. 🙂 But otherwise I agree they are an option, especially if you’re lucky enough to pay taxes on cash savings. Their appeal is diminishing a little as rates rise though.
@The Investor : Good point! In practice, with the full £50,000 saved, you’re going to get a return close to 1%/yr, which as you mentioned is close to 1.8% with instant access if you’re an additional-rate tax payer and get no personal savings allowance.
Worth noting (as your linked article does) that the FSCS offers a temporarily increased limit of £1million for 6 months in certain circumstances eg cash from a house sale
Also, the Chase A/C has a daily withdrawal limit of £25k.
@TI – Premium bonds are sufficiently similar to savings accounts in terms of risk and return that I’d be inclined to include them in any comparison. I thought with the rate increase the average return was now 1.3% tax free (equivalent to ~1.625% before tax for a higher rate payer) if they are exceeding their allowance?
How much cash? 35-40%! Saving for a so-far entirely theoretical house purchase, but also – approaching retirement – I decided to hedge the 25% tax-free lump sum from my pension with cash in my ISAs rather than doing it with the limited and expensive and low-yielding cash-like options available within my SIPP and workplace DC pension scheme (i.e. “money-market” and “liquidity” funds). Also, when I started out, not knowing much about investment, I wasn’t really convinced that bonds were that much better than cash in savings accounts for the low-risk part of my pie. Apart from anything else, you can shop around for the best interest rate, whereas I figured you have to assume an average return on bonds. Those comparisons between average bond yields and average savings rates aren’t very helpful, because why would you leave your money in an “average” account? Even worse when they say “by the way, when we talk about cash, we really mean T-bills”.
So I’ve probably put far too much effort into scraping out the last 0.1% of interest, mostly by using regular savings accounts and fixed rate cash ISAs. At one stage I was running about a dozen regular savers at a time. As each one matured into easy access, I’d deal it out into the surviving ones. But right now, instant access rates are creeping up, but regular savers rates not so much, so the premium for locking your money away doesn’t justify the hassle in my view. (I suspect that while Funding For Lending was available a lot of building societies were running regular saver accounts as a way of retaining their long-term customers without actually drawing in much money from them.)
For me, the big advantage (for that entirely theoretical house purchase!) of fixed rate cash ISAs is that unlike fixed-rate non-ISA accounts, they have to allow you access, although there will be a penalty and many only allow full closure, not partial withdrawal. I addressed the last point by having useful chunks in separate accounts. But cash ISA rates are generally only about the same as the after-basic-rate tax rates on the equivalent non-ISA accounts. In any case, I expect most readers of this site would be better off using their ISA allowance to avoid the paperwork hassles of holding equities, bonds etc. outside a wrapper, let alone the potential CGT.
As for premium bonds, I was put off by moneysavingexpert’s analysis, which suggests that you’ve got to have pretty much the maximum holding to even approach the theoretical interest-rate equivalent. Might be different if I was a higher-rate tax payer though.
Marcus have just announced a new bonus of 0.25% that can be added to their 1.15% savings account , so you can get 1.3% in total. It is even available to those that were mid-way through the year of a lower bonus they offered, like me.
Worthwhile signing in and getting it if anyone hasn’t done so already.
I do like their user interface, very slick, it puts a few other providers to shame.
Just a lesson for others especially beginner investors. I’m in my 50’s and had to unexpectedly retire through ill health – so thrown my retirement plans a bit into the air. Have around 40% of my portfolio in cash now but was all mainly in cash apart from personal pensions. I transferred these this year into SIPP’s as I felt they were stagnating over the years and providers were no longer looking after me but taking high charges. Due to my circumstances and high inflation and cash accounts losing money in real terms, I also decided to start investing – mainly in passive index funds as I know nothing about investment. At the time I started this process in October/November last year many well known sites were writing about investing in this or that US index fund (and ETF’s) would have made you a millionaire over the last 20 years or whatever investing X amount so I started investing quite a bit in these in 100% equities (as well as in some international funds and a tech fund as well.)
However we know what happened this year with these growth stocks and not many weeks ago were down some 20% (and tech around 30%.) I haven’t looked since as it’s too scary. So this is not now just losing out to inflation, this is losing in real terms – in 5 figures and tens of 000’s and it hurts especially when you are in forced retirement. The thing is I never heard of asset allocation, I’d not found the Monevator site or read many of the excellent articles that I have now – just wish I had done so earlier. I’m not risk averse. I think I’m fairly risk tolerant but when you are retired it is a bit of a disaster. It’s just good that the downturn didn’t start a bit later or I’d have maybe have invested around 90%. I’m not worried about dips as that’s just a part of it but it’s the not knowing how long it will be before they recover – a year or two is not end of the world but if it goes on for 5 or 10 then it is.
So this is a lesson in that if you need your money soon – keep some cash aside and do proper asset allocation to reduce any pain. This is what can happen if you go in all equities. I did read comments of readers saying why invest in bonds when there was little or no return. To be honest I’d never really heard of bonds and still don’t relish investing in them but see the point of them – not for a return necessarily but as portfolio protection but when I do I will keep it simple with bond funds as I think it’s easier, less time consuming and less knowledge needed for a beginner investor especially when I don’t see it as a hobby.
Just for the moment it has put me off investing any more. However you still read articles that say don’t sit on the sidelines with more than 5 or 10% cash and don’t try to wait/time the market trying to anticipate when the downturn has ended but I’d have been better staying all in cash as I believe bonds are still losing. So what to do is the question?
I do think proper asset allocation is the most difficult thing for a beginner to get to grips with. I like keeping things simple but I think the 100 (or 120) minus your age rule is a bit too simplistic as who says when you are going to need your money or when you will retire? I prefer the sound of allocating to “pots” such as a short term cash pot for the next couple of years (and I’ve already got that) and I could say I’ve already allocated my long term higher risk pot in equities – although admittedly should not have done that first and if known what I know now would have done it differently but bit late now.
The problem I’ve still got to think about is allocating the medium term pot for the next say 5 or 6 years after the cash pot but to what is the difficult question at this time? Should this all be in bonds if you are going to need the money after perhaps 2 years or other things as well – even a split with some equities? Not sure and not sure if now is the right time to invest in bonds or keep holding cash instead as I’ve read that even bonds at the moment aren’t always doing their normal job in providing much protection to the portfolio.
Just seems to be nothing at the moment where you can make a real return taking inflation into account but seems cash is where you suffer the least. Hard times it seems. Need to read some more I think but unfortunately there are many conflicting views on different websites from various commentators which just is more confusing. I mean your articles are first class and both the Accumulator and the Investor have excellent knowledge but from what I have read don’t always agree on best method of asset allocation as the Accumulator advocates bonds whereas the Investor suggests he doesn’t really hold them to any degree preferring cash instead so is quite difficult and precarious for the beginner. I’m not being critical by the way (I’m not qualified) and I know there is no absolute guaranteed answer and everyone is different, but just saying it is quite difficult for the beginner to navigate and I can see how many would be put off investing.
All the best to everyone, great site and good reading.
@Jam, I too was able to add that Marcus bonus today. To be honest I can’t quite work out their approach, why don’t they just offer the headline interest?
Not quite so sure about the slick interface though, without the instructions in the email it would have been quite difficult to find your own way through the menus to the point where you claim the new bonus.
Albert S, I have every sympathy with your difficulties. I have been attempting to involve my children in my investments simply to encourage some “learning experiences”; their retirements look like being much more difficult than those of us currently retired. And wow is the current situation a full on learning experience!
I agree entirely with the Treasurer to encourage holding cash in readiness, while, as you say, there is complete bafflement about where to turn.
I have always understood in business, finance and indeed military sectors , re- enforcing failure is a non option. Once one sees the market falling it would only make losses greater to keep investing. It is also worth recalling this is when compounding “reverses”, a 20% fall in capital value, requires a 25% increase, to return just to the starting point!
One has in fact lost nothing in existing investments while one does not sell and should it all go to pot, as little men, we can be sure we will be trampled in the panic of big institutions. So I am with the Treasurer, keep ones remaining powder dry until the smoke clears – and many other mixed metaphors!
Usually making no decision is just abdicating control. But as you say there are no hard and fast rules (or we would all be billionaires), so now is the time if there ever was, IMHO, for an exception, take no action while there is absolutely no “intel”. The risk of investing blindly must be inordinately high, compared with the risk of losing out from inactivity for a short time.
Where one stores ones ammunition for the future is the Treasurer’s concern, clearly the most rewarding savings accounts are best, as long as protected – so never more than £85,000 in any one. The finesse of fixed rather than easy access, especially when accounts are changing rates so frequently I would suggest is not something to be overly exercised about.
I have always understood Wellington owed a lot of his success, to orderly withdrawals, to prepared and defendable positions! So I recommend steady inaction and thorough reviews of past actions, hopefully to improve future direction when the “investment climate” at least moderates.
I am holding too much cash and always have been, but I am terribly risk averse. I also had a bad experience due to my job situation over the covid period that led to a short period between jobs. Having a huge cash buffer was reassuring and it also made me less keen on SIPPs, as I did feel a bit exposed in that short window. Having decent SIPP accounts is no use at the point you are effectively unemployed and it made me re-evaluate my saving/investment plans when I started in my new role. Like someone has indicated already, don’t assume health, redundancy, or life events wont derail your plans. I painlessly aquired a new, equivalent role, but in retrospect, I was in near shock at the time as I did not see the situation coming in advance. I was very well positioned for even years of unemployment if it came to that, but the experience alone probably made me value cash savings even more.
Interestingly, this small period of being unemployed made me value LISAs more, as I now view them as a proper good contingency between early retirement and access to pensions. To me, LISAs are almost a SIPP, with nearly as good government top up, but also accessible before pension access age if things go really badly, albeit with a punitive early access charge.
I still find losing money due to inflation on a cash pot very acceptable, and balance this with a near 100% index fund employer matched pension and more balanced LISA and SIPP allocations (index equities/bonds, almost no cash), with ISAs being at the end but lower equity positions.
I know my expected return is greatly reduced by this approach, but it serves my needs: large contingency in cash if i was suddenly in need of it, and most risky assets are almost all funded in accounts with government top ups and/or employer matches, so even 20-40% market drops would be acceptable to me.
The above is NOT optimal on average, I understand, but my likely path to FI will have too much cash and be slower than it could be. I am fine with my line of work. FI to me is about having options. This is always my position with finance things – I don’t criticise choices people make as long as they understand them – in my case, I am both losing money in real terms due to inflation, and also prohibited from experiencing the potential gains from alternate decisions. Fine.
On the savings account side, I’ve got lazy now and just use a well known platform that offers 1 year fixes from many banks and you just take your pick. Recent rates have been 2.2-2.4%. As I use a single platform, I don’t have to do any paperwork – that is where the lazyness comes in, I no longer can face application paperwork. In my very younger days I would have been prepared to chase the top rates, but not anymore.
I like Hargreaves Lansdown’s recently launched Active Savings service. You can open and manage a range of easy access or fixed-term savings accounts from various banks and building societies via the HL platform, alongside ISAs etc. I don’t have a massive cash allocation, but having it all under one roof definitely simplifies things.
I should also mention that I own shares in Hargreaves Lansdown, so my glasses may be rose-tinted.
Can someone explain the cash/low risk options in a SIPP? I have plenty of equity coverage in my SIPP so I have been paying my recent SIPP contributions into either into a Gilt fund or just leave the cash in the SIPP. I thought there would be a fund that tracks a savings account or something similar but I cant find anything. ,Even if it only pays 1% it would be better than nothing. I have a Halifax/AJ Bell SIPP.
Johnny
I carry around five years expenses in cash or cash equivalent. About 20% of that is in NS&I index linked certificates. Sure, it’s too high – but it means I can weather all but the stormiest of bear markets. Currently, I mitigate against inflation losses by topping it up with contributions from salary, buying in bulk on sale and spending on bill reduction measures.
@Jam, @Jonathan and anyone else using Marcus: You can renew your bonus any time you like – meaning you always have at least 11 months bonus to run, if you renew monthly, until such time as they reduce or stop the bonus. Just view your account, then click the link at the bottom right of the page.
Possible reasons for having a bonus instead of just a higher variable rate are that the bonus is guaranteed, so helping retain customers in falling rate scenarios; and some people will forget to renew the bonus, so saving Marcus money.
@ G
I would regard your cash as 4 years expenses and disregard the NSI ILSCs. I have c£120k in ILSCs and they have grown at 9% in the admittedly extraordinary last 12 months. They are the last thing I would consider drawing down, at the moment at least and probably ever, so I don’t include them in any consideration of how many years spending I hold in cash. It would be different if it was still possible to put in new money.
@John Michael Simpson
I made the same search for “cash equivalents” within a SIPP, and there don’t seem to be equivalents to savings or deposit accounts. I _think_ there must be some legal prohibition. It seems that the closest you are likely to find is a “money market” or “liquidity” fund. They’re typically used in automatic “lifestyling” options to hold an increasing percentage of your pot in the last few years before your planned retirement date, so that you wind up with 25% in something “cash-like” that you can use to fund your tax-free lump sum. They’re designed to be very low-risk, but they _can_ go down a bit as well as up, and management and platform charges will eat away at them if you leave your money in them for an extended period.
Thanks @David. I took a punt on a “Cautious Portfolio” HSBC thing so see what happens. Currently down 1% after a week lol. Leaving in cash probably best option at moment…