With increasing interest rates, UK savers have a golden opportunity to earn more from their savings than they have in years. However, this boon comes with a catch: you need to be savvy about where you park your cash. Unfortunately, many aren’t. The Financial Conduct Authority reveals a staggering £260 billion is languishing in low-interest accounts (1% or less). To truly benefit, you must look beyond the offerings of your high street bank and explore better options.
The Importance of Keeping Accessible Cash
When it comes to accessible savings, experts advise having enough to cover three to six months’ worth of essential expenses if you’re working. For retirees, this amount increases to one to three years’ worth of expenses. The key here is to keep this sum in an easy-access account, which offers flexibility and a decent return.
Finding the Best Easy Access Rates
While top easy access rates hover around 5%, beware of the fine print. These headline rates often come with strings attached, like limited withdrawals. For instance, Paragon’s Double Access Account offers 5.15%, but this drops to 1.50% after three withdrawals in a year. Additionally, the interest you earn can vary based on how much you save, with different accounts offering varied rates for different savings tiers.
Regular Savings Accounts
High street banks often shine in their regular savings accounts. First Direct, for example, offers a 7% fixed rate for 12 months, with specific deposit limits and conditions. Nationwide offers an 8% variable rate on its 12-month regular savings account, with a few more flexible withdrawal options. However, exceeding four withdrawals in this case lowers your rate to 2.15%.
Fixed-Rate Bonds for Locked-In Savings
Fixed-rate bonds, offering a guaranteed rate for a set period, are ideal for expenses you can foresee, like weddings or home improvements. Current rates for one-year bonds are around 5.5%, similar to easy access rates. But note that these bonds usually don’t allow early access, even with a penalty.
Notice Accounts
Notice accounts strike a balance between fixed-term and easy access accounts. They require you to give notice before withdrawals, like Harpenden Building Society’s 60-day notice account offering 5.15% on deposits of £1,000 or more.
Is an Isa the Better Option?
With interest rates rising, cash Isas, which allow tax-free savings up to £20,000 per financial year, are becoming increasingly attractive. The personal savings allowance is still in play, letting basic-rate taxpayers earn up to £1,000 interest tax-free, and higher-rate taxpayers up to £500. However, with higher interest rates, you might exceed this allowance, making Isas an appealing option.
Beware of Tax Implications and End Dates
Pay attention to the tax implications and end dates of fixed-rate accounts. Interest earned in the final year could be subject to tax. Also, consider using savings platforms for ease of managing and switching between different accounts.
Your Money’s Safety
When using these platforms, ensure your savings do not exceed the £85,000 limit with any single provider to stay protected under the Financial Services Compensation Scheme.
In conclusion, while the rising interest rates in the UK present a lucrative opportunity for savers, it requires a strategic approach. By understanding the nuances of different savings accounts and staying aware of the fine print, you can significantly enhance your savings’ growth potential.