Consecutive lockdowns to help manage the pandemic has resulted in many consumers having extra disposable incomes that they could stash away into savings funds. In fact, the latest Bank of England data shows that between April and June 2021 the average deposits into banks and building societies was £8.8 billion, whereas the average inflow in the year to February 2020 was just £4.7 billion.
Although consumers have been depositing more into savings accounts over the last 18 months, unfortunately savings rates have plummeted during this time. Back in March 2020, the Bank of England cut base rate to a historic low of 0.1%, where it has remained since, as well as launching a new funding for lending scheme the following month – both of which has contributed to saving rates remaining low.
These last 18 months has seen saving rates fall to their lowest levels on record, with average easy access savings rates falling to its lowest rate of 0.16% during March to June 2021 and the average rate on one year fixed bonds falling to a low of 0.42% in April 2021. Meanwhile, longer-term fixed rate bonds fell to their lowest rate between March and April 2021 when the average rate stood at just 0.65%.
The good news for savers is that over the last few months saving rates have started to see small improvements. It is hoped that with the possibility of the Bank of England raising base rate early next year, along with challenger banks becoming more competitive, these small improvements are the first signs of a savings recovery.
For savers wondering where to put their money now, here we’ve highlighted the accounts that offer the best returns for savers.
Saving into an easy access savings account is a good option for those who want to continue adding to their savings, while also having the option to withdraw money instantly. The downside to these accounts, however, is that they usually offer the lowest rates of all savings accounts. As such savers looking to get the best returns on deposits in easy access savings accounts should regularly check our easy access saving comparison chart for the best rates and switch accounts if a new, better, deal becomes available. Savers should also be aware that easy access accounts always offer variable rates, which means that the bank or building society can reduce the rate, or increase it, at any time.
The top rate in the easy access savings account chart is currently being offered by Tandem Bank, which pays 0.65% AER on its Green Instant Access Saver. This account does not need a deposit to open and further additions and withdrawals via a nominated account can be made. The account can, however, only be opened and managed via mobile app.
Aldermore has the next best easy access saving rate with its Double Access Account Issue 1 paying 0.60% AER. This account can only be opened and managed online and requires a £1,000 minimum deposit to open. Further deposits can be made into the account, but it pays a lower interest rate if more than two withdrawals are made per annum.
Another option for savers looking to be able to access their savings is a notice account. Notice accounts also usually allow savers to continue making deposits into the account, but savers must provide a notice period if they want to access their savings – with accounts requiring the longest notice period often offering the best rates. As with easy access savings accounts, notice accounts offer variable rates, so savers should be aware that they could find they are having to wait to withdraw their savings from an account that is paying a lower rate than when the account was originally opened.
In return for having to give notice to access the money in the account, notice accounts usually offer higher rates than easy access savings account. For example, the top rate in the notice account chart is currently 1.06% AER, which is paid by Oxbury Bank on its Personal 120 Day Notice Account – Issue 1. A £1,000 minimum deposit is needed to open this account. It allows further additions via a nominated account and, as the name suggests, requires 120 days’ notice for savers to access their money, which must be withdrawn via a nominated account. This account can only be opened online and can then be managed online and via mobile app, although savers need to be aware that an Oxbury App is needed to use online banking.
Both DF Capital and Charter Savings Bank pay the next-best notice account rates, on accounts that require 120 days’ notice for making withdrawals. DF Capital pays 1.05% AER on its 120 Day Notice Account (Issue 1), which requires a £1,000 minimum deposit to open and allows further additions. This account must be opened and managed online. Charter Savings Bank pays 1.05% AER on both its 120 Day Notice – Issue 24 and 120 Day Notice Postal – Issue 24 accounts. To open these accounts a £5,000 minimum deposit is needed and they allow further additions. 120 Day Notice – Issue 24 can only be opened and managed online, whereas the postal version can be opened online or by post but must be managed by post.
Savers who have already built up a savings fund may want to consider putting a lump sum of money into a fixed rate bond. Unlike easy access savings accounts and notice accounts, fixed rate bonds do not usually allow savers to continue making deposits into the account and they normally do not allow withdrawals to be made either. Instead, savers must be prepared to lock their money into the account for its entire term and can only access their money once the account matures. Although fixed rate bonds are not a good option for savers who may need to access their savings, for those who are confident they will not need the money, these accounts usually offer the best savings rates of all savings accounts.
It will come as no surprise that normally the longer the term on a fixed rate bond the higher the interest rate that is paid. As such, the best paying fixed rate bond comes from Atom Bank which pays 1.86% AER on its five-year term bond 5 Year Fixed Saver. This account can be opened with a minimum deposit of just £50, but can only be opened and managed via mobile app.
Savers who do not want to lock their money away for a long period of time can instead choose a bond offering a shorter term. For example, those happy to lock their money into an account for an 18-month term will find that Al Rayan Bank’s Fixed Term Deposit has the top rate paying an expected profit rate of 1.55% AER. This account requires a £5,000 minimum deposit to open. It can be opened and managed online, in branch, by phone and via mobile app.
Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme (FSCS) up to a maximum level of protection of £85,000 per person per institution. All new savings or bank accounts provided to UK customers are now covered by the FSCS.
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