Rate rise boost for savers
Savers still need to shop around to find competitive returns however, as not all banks and building societies pass on rate increases.
This week’s interest rate rise might mean more mortgage misery for homeowners, but it’s good news for savers who are already benefiting from some of the highest returns they’ve seen for years.
The Bank of England’s Monetary Policy Committee voted to raise rates to 4.25%, the eleventh consecutive time it has increased them since December 2021. Savers still need to shop around to find competitive returns however, as not all banks and building societies pass on rate increases.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The average easy access deal, according to Moneyfacts, is up from 1.8% in mid-February to 1.91%. This rise means we’re likely to see that continue to creep up. If you haven’t switched easy access savings for some time, particularly if your money is sitting in a high street account paying far less than 1%, it’s well worth considering a switch – especially now the best on the market are offering well over 3%.”
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Current best buy easy access savings accounts include Chip’s easy access account, which pays 3.40% on a minimum balance of £1 and can only be opened via the Chip app, and easy access accounts from Cynergy Bank, Coventry Building Society, and Paragon, all of which pay 3.25% on £1 upwards.
Where can I find the highest savings rates?
Regular savings accounts usually offer the top savings rates, although you generally need to have a current account with the same provider to be eligible to open one. For example, First Direct’s Regular Saver account, which pays an impressive 7% annual interest before tax, is only available to existing First Direct 1st Account customers. Similarly, only if you have a Club Lloyds current account with Lloyds Bank, will you be eligible to open a Club Lloyds Monthly Saver account, which pays 6.25%.
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These accounts tend to last for 12 months, and there also a maximum amount you can save each month. Some accounts don’t allow withdrawals during the account term either, so if you choose one that doesn’t, you’ll need to be comfortable tying your money up for a year.
The First Direct Regular Saver account, for example, allows you to save from £25 a month up to a maximum of £300, but you can only get your money out at the end of the 12-month term. The Club Lloyds Monthly Saver permits monthly deposits up to £400, and this account does allow withdrawals. Similarly, NatWest and RBS’s Digital Regular Saver accounts pay 6.17% and you can make withdrawals whenever you want, but you can only pay a maximum of £150 a month into these accounts. You must be a NatWest or RBS current account customer to open a Digital Saver account.
Rising savings rates boost the appeal of cash ISAs for their long-term tax benefits, as returns are free from income tax. If you hold savings outside an ISA and you’re a basic-rate taxpayer, you can earn up to £1,000 in interest per year tax-free thanks to the personal savings allowance. Higher-rate taxpayers can earn up to £500 a year from their savings tax-free, and additional rate taxpayers aren’t given an allowance.
Current best buy cash ISAs include Furness Building Society’s 45 Day Notice Cash ISA, paying 3.30% on a minimum investment of £1,000 and Mansfield Building Society’s 180 Day Notice Cash ISA, which pays 3.25% on a minimum investment of £1.
You can put up to £20,000 into ISAs this tax year, which finishes on 5 April, and if you don’t use your allowance by this date, you can’t roll it over to next year. You will, however, get a new £20,000 ISA allowance when the new tax year starts on April 6.