If you’re a saver, you should always be looking at ways to make your cash work harder – whether that’s moving banks or opening new accounts.
Many savers leave their cash in low-paying accounts, something which has prompted the Financial Conduct Authority to launch a fresh probe into the savings market. It says that providers often let customers leave their cash in poor-value accounts and is looking to address the issue. Meanwhile, what actions can you take to earn a better rate?
With inflation still high, very few savings accounts can maintain the value of your money. Your best bet for a return that beats inflation is a regular saver, though the top-paying accounts require a linked current account to open them, and these products can only be used for a year.
The First Direct Regular Saver is the most generous account. It pays 5% interest on cash deposited, and you can deposit between £25 and £300 each month.
Four other accounts also pay 5% interest, but with more limited monthly deposits permitted: Nationwide Flexclusive Regular Saver (allows deposits of £1 to £250), HSBC Regular Saver (£25 to £250), M&S Bank Monthly Saver (£25 to £250) and Santander 123 Regular eSaver (£1 to £200).
Current accounts also offer good rates of interest. For example, the Nationwide FlexDirect account pays 5% interest on balances up to £2,500 for the fi rst year, but this drops to 1% thereafter. You must deposit at least £1,000 each month into the account to earn this 5% rate of interest.
Elsewhere, the Tesco Bank Current Account offers 3% interest on balances up to £3,000, while TSB Classic Plus pays 3% interest on balances up to £1,500. However, the Tesco account has a £750 minimum pay-in and requires three direct debits to be set up, while TSB requires a £500 monthly pay-in to receive the headline interest rate.
Lock for longer
Among savings accounts that are not linked to current accounts, you can get higher returns by locking your cash away for a longer period. My Moneywise Best Buy is the Vanquis Bank Five Year Savings Bond, which pays 2.56% on balances of £1,000-plus. However, once you’ve deposited your cash, you will be unable to access it until 2023.
This compares to the top one-year savings bond – the Ikano Bank Fixed One Year Saver – which pays 1.85% on balances of £1,000 or more. Remember your savings here are protected by the Swedish deposit protection scheme, rather than the UK's FSCS..
The same applies in the Cash Isa market, with the Charter Savings Bank Five Year Fixed Rate Cash Isa paying 2.25% versus the 1.5% offered by the Virgin Money Fixed Rate Cash Isa (Issue 348). The Charter Savings Bank account can be opened with £1,000 or more, while Virgin Money requires just £1.
However, savers should be aware that we are now in a rising interest rate environment. The next Bank of England base rate rise is expected in the early summer, so savings rates are likely to rise. By holding off a few weeks, you may be able to seal a better rate. But if you’re putting aside new money, remember there’s a deadline of 5 April to use your £20,000 Isa allowance for the 2017/18 tax year.
A model idea
Savers who are willing to open multiple accounts can earn even more on their cash. The Moneywise model savings portfolio uses a pair of current accounts, a linked regular saver and a fi xed-rate one-year bond so you can maximise your returns.
A saver with a £10,000 portfolio can earn more than 3% by spreading their cash across multiple high interest accounts. Read our full guide on the Moneywise savings portfolio.
This account pays 1.25% to savers and must be opened online. You must have a balance of £1,000 or more.