With interest rates so low, where can you get a decent return if you want to keep your money in cash? Here are ten ways to earn the most interest on your savings now.
Easy access cash ISA
If you want to be able to save but guarantee that the interest is tax free forever, then a cash ISA is the best way to do it. If you don’t want to lock your money away or risk having to lose interest if you take some out, then an easy access cash ISA is the best option.
As I write this, NS&I Direct ISA pays the highest rate at 1%, but this will fall to 0.75% on May 1st.
You can get 0.95% from Saga’s easy access cash ISA (called the Saga ISA Saver). I don’t like this account so much as it has a 0.9% bonus for 18 months. After that, the interest rate drops to just 0.05%.
Several banks and building societies pay 0.9% on easy access cash ISAs. These include the Coventry building society cash ISA, Skipton building society cash ISA (including a 0.25% bonus) and Post Office Money online ISA (including a 0.65% bonus).
Notice cash ISA
With a notice account you have to tell the bank or building society before you’re able to take money out of your account. You may have to give 30 days, 60, 90 or even more notice. If you don’t give notice, you’ll lose interest for the notice period.
In theory you should get a higher interest rate than if you saved with an easy access cash ISA, but the difference in interest rate can be pretty small.
As I write this, the Earl Shilton building society pays 1.15% on its 90 day notice cash ISA. You must have a minimum balance of £10. This account is only available to people living in specific postcodes in and near Leicester. Both Charity Bank and Principality building society have notice cash ISAs (33 day and 30 day respectively) paying 0.9%. Charity Bank needs a minimum balance of £250 and Principality building society needs £500.
SAVVY TIP: You may not have heard of Charity Bank but it has been going for some time. It is the only bank that is also a charity. It is regulated by the FCA in the same way as an ordinary bank and your savings are protected by the FSCS (the UK’s savings scheme) up to £85,000.
Fixed rate cash ISA
If you can afford to lock your money away (or some of it), you can get a higher rate of interest if you save in a fixed rate cash ISA. As I write this you can get up to 1.75% (with Paragon Bank’s cash ISA) if you save in a five year fixed rate cash ISA. You may be able to get at your money before the fixed rate term is up (check the details as this varies from ISA to ISA), but you will lose some interest.
SAVVY TIP: Be aware that with most fixed rate cash ISAs, you have to pay all the money in within 30 days of opening it. So, if you only have a relatively small amount to save at the time, but you think you’ll be able to use your ISA allowance later in the year, be aware that you won’t generally be able to top up your fixed rate cash ISA or open a second cash ISA. However, some cash ISA providers will let you keep more than one cash ISA under an ‘umbrella’ and it’s not against HM Revenue and Customs’ ISA rules. You can read more about this in my article called How many cash ISAs can you have in one tax year?
The prize rate for Premium Bonds will be 1.15% from May (it’s currently 1.25%). This is the equivalent rate that someone with average luck can expect. If you’re a higher rate taxpayer, you’ll do better than someone who’s a basic rate taxpayer or who doesn’t pay tax, because any winnings you receive are tax free.
You can save between £100 and £50,000 in Premium Bonds and all money you have with NS&I is backed by the Treasury. There are currently two prizes of £1 million every month, and over two million prizes of £25 with interim prizes from £50 to £100,000.
Easy access savings accounts
If you save in an ordinary savings account, rather than a cash ISA, you may be able to get a slightly higher interest rate. If you’re a basic rate taxpayer, you can get up to £1,000 a year in interest tax free, or £500 if you’re a higher rate taxpayer.
Best buys at the moment are 1.1% from RCI bank’s online saver account. It’s a French bank and it’s not covered by the UK’s compensation scheme. Instead, your savings are covered up to €100,000 by the French compensation scheme.
If you don’t mind an account paying a bonus, Skipton building society’s easy access account will pay 1.02% (with a 0.21% bonus for 12 months), Post Office’s online saver will pay 1.01% (with a 0.76% bonus for 12 months) and the AA’s easy saver will pay 0.91% with a 0.71% bonus for 12 months.
Fixed rate savings accounts
If you’re happy to leave your money locked away for a few years, or to pay an interest ‘penalty’ if you want to take money out, a fixed rate account will pay a higher rate of interest. As I write this you can get 2.25% from a five year fixed rate saver from Atom Bank, which is a mobile only bank. You’ll need a minimum of £50 and you can’t make early withdrawals. Your savings are covered by the UK savings compensation scheme up to a limit of £85,000.
Otherwise you can get 2.25% from the Secure Trust bank’s five year fixed rate savings account if you have at least £1,000 to save. Again, you can’t get early access to your money.
If you don’t want to tie your money up for five years, you can get 1.9% with Atom Bank’s three year saver on balances of £50 upwards.
You may be able to earn more in interest if you keep money in your current account than in a savings account. However, there are normally fairly low limits on the amount you can save, or the higher interest rate only lasts for a fixed term (or both).
Santander’s 1-2-3 current account used to pay 3% on balances between £3,000 to £20,000, but now it pays a flat rate of 1.5% on anything you have in the account up to £20,000. The monthly fee is £5 – so it’s not right for everyone.
TSB’s current account pays 3% interest on balances up to £1,500. Lloyds bank’s Club Lloyds account pays 2% on balances from £1,000 to £5,000, and costs £3 a month. Nationwide’s Flex Direct account pays 5% interest for the first 12 months on balances up to £2,500.
SAVVY TIP: All these accounts have conditions you must meet. Generally, it means you have to pay in a minimum amount and set up one or two direct debits.
Regular saver accounts
To get the best rate you need to have a current account with the same bank or building society (M&S Bank, First Direct, HSBC or Nationwide). As I write this, all pay 5% interest on their regular saver accounts. You can generally save between £25 and up to £250 – £500 a month. The upper limit depends on the provider you’re with.
You have to be under 40 to take out a lifetime ISA (LISA) and you can only open one from April 6th. As with ordinary ISAs, there will be cash and stocks and shares options, but at the moment only one building society – Skipton – has said it will offer a cash lifetime ISA. More are likely to follow in the coming months.
I don’t yet know the interest rate that the Skipton will offer on its LISA as it won’t be available until June.
SAVVY TIP: You can only use a lifetime ISA to buy your first home or you can cash it in after you’re 60. You get a government bonus of 25% and you can save up to £4,000 a year. There’s more in my article called Lifetime ISA – how will it work and should you have one?
This isn’t saving in the conventional sense in that you don’t earn any interest. With an offset mortgage, your savings and mortgage are linked and you only pay interest on the difference between your mortgage amount and the money you have in savings.
While you don’t earn interest on your savings, you save interest on your mortgage. The beauty of offset mortgages is that you can get the money in your offset savings account back at any time.
SAVVY TIP: This can make sense for many people but whether or not the maths adds up depends on the offset mortgage interest rate and how that compares to the rate you could get on an ordinary mortgage. There’s a quick guide to How an offset mortgage can save you money in my video.
Thanks to Moneyfacts for all the cash ISA and savings account interest rate information.
What is an innovative finance ISA? Innovative finance ISAs explained
10 things you need to know about making a savings claim to the Financial Services Compensation Scheme.
SavvyWoman email newsletters: If you found this information useful why not sign up now to receive free fortnightly email newsletters with money saving tips and help? You can sign up at the top of any page on the website and your details won’t be passed to any other company for marketing purposes.