Interactive Investor

Where should savers put their money to benefit from the rising interest rate?

24th October 2018 12:59

Stephen Little from interactive investor


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The Bank of England has raised interest rates twice in the past 12 months – news that should be music to the ears of beleaguered savers.

But despite the second rise in August raising rates from 0.5% to 0.75%, most savers are yet to reap the benefits.

Seven of the 10 biggest banks have still not passed on the interest rate rise in full, according to research from Moneyfacts. In fact, the average easy-access account has risen by a paltry 0.06%. This takes the average interest rate paid to 0.59%.

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With rates remaining low for now, it’s as important as ever to shop around to make sure your money is working as hard as possible. So what are the best options out there?

Easy-access savings accounts

Easy-access savings accounts provide a great way of getting hold of your money quickly, without having to lock it away in a fixed-rate bank account. However, easy-access rates are typically lower than fixed-rate ones.

Marcus by Goldman Sachs is the easy-access account with the highest rate on the market at 1.5%.

Savers can open an account online with as little as £1. However, it comes with an initial 12-month of 0.15% so your rate will drop to 1.35% after one year.

Alternatively, you could plump for the Virgin Money Double Take E-Saver Issue 8 at a 1.42% rate.

You can open this account online with an initial £1 deposit, but the account is limited to two withdrawals a year.

Notice accounts

If you are willing to wait a little bit longer to get hold of your cash, you might want to consider a notice account.

Notice accounts tend to have a higher interest rate than easy-savings accounts, but you will lose interest if you decide to withdraw your money without notice.

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The Charter Savings Bank 95 Day Notice Issue 20 is currently the best notice account on the market with a rate of 1.77%. However, it requires 95 days’ notice to withdraw cash.

Tax-free saving

It is the same story for Cash Isas. Providers such as Santander, Virgin Money and the Post Office are all guilty of being reluctant to pass on rate rises to Cash Isa customers.

However, there are still some good deals out there if you are prepared to shop around, with some of the newer challenger banks offering higher rates than those on the high street. In fact, you could earn £200 more on a Cash Isa if you opt for a provider that is not on the high street, according to Moneyfacts.

The best easy-access deal currently is the Leeds Building Society Limited Issue Online Access Isa (Issue 7) paying a rate of 1.38%  to savers. This account requires a £1,000 minimum deposit and you can open it online.

Alternatively, you might want to consider the Virgin Money Double Take E-Isa Issue 2 at 1.38%. However, you are limited to two withdrawals a year. If you exceed this, the bank will cut your rate.

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Atom Bank’s One Year Fixed Saver at 2%

If you’re prepared to lock away your money, you might want to take a look at Atom Bank’s One Year Fixed Saver. Interest is fixed at 2%, so your return is guaranteed, unlike easy-access and notice accounts, which tend to be variable. On the downside, you won’t be able to make any withdrawals for 12 months. You can open the account with £50 and it is managed through Atom Bank’s smartphone app.

Note: rates are correct as of 12 September 2018.

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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