More than ever, it’s essential you know where best to keep – and build – your savings. Here, we outline the best regular savings accounts for your money, covering interest rates, access, protection, and more…
Rising interest rates may be unwelcome news for people with loans and outstanding mortgages, but they are great news for savers. The latest Bank of England move in June 2023 was the 13th rise in a row and took the base rate to 5%.
Most economists now think that the base rate could hit 6% by the end of the year. Which begs two important questions for you:
- Are your savings in the best type of account?
- Are you getting the best return on your savings?
In this article we answer both these questions, and we also show how you can earn 50% on your money if you are a low-income earner!
To ensure your savings are working their hardest for you, first set your savings goals. Then you can figure out how much to save and consider all your personal financial factors (like tax, need for access to cash, etc.). Now you’re ready to choose the best account for your needs and circumstances.
Right now, the highest interest rates available are:
- Easy Access: 4.35% with Shawbrook
- Regular Saver: 7% with First Direct
- Fixed-Rate Bonds: 6.15% with FirstSave
- Notice Accounts (90-Day): 5.09% with BLME
- Children’s Savings Accounts: 5.5% on the Halifax Regular Savers account
- Cash ISAs: 5.4% on Coventry Building Society’s fixed-rate cash ISA
- Business Savings Accounts: 4.85% on the Redwood Bank 2-Year Business Savings Bond
What Are Savings?
Savings are cash that you don’t spend. They are the coins you take out of your pocket and put in a jar at the end of each day. They are the roundups that most banks allow you to make when you spend money (rounding up your receipt to the next full pound and depositing the difference in a digital jar away from your current account). Savings are the proverbial ‘cash under the mattress’ that you’ve put by for a rainy day.
Are Your Cash Savings Costing You?
When you save money in a jar, it’s fun to see your cash pile grow. Yet there are problems with this.
First, if your savings are in a jar, they are vulnerable to being stolen, by burglars or someone closer to home. (I used to put all my change in a jar every day. Every couple of weeks my then 7-year-old son would present me with five pounds of change and ask if I could change it for a five-pound note. I’d praise him for saving so much of his pocket money. Yep, you guessed it – he was selling my own change back to me! I couldn’t fault his ingenuity.)
Second, it’s a source of temptation. When it’s so easy to open that jar and take a few quid out, those impulse buys that destroy all your good budgeting intentions and financial planning become easier to make.
Third, every day your money sits in that jar or under your mattress, it is losing money. Especially with inflation so high. At 10% inflation, the £100 you have in your pocket today will only be worth £90 in a year.
Even if your bank is sweeping your spare cash into a separate account, your wealth is probably suffering. Banks can be cunning, and the likelihood is that your savings account is paying much less interest than you can get elsewhere.
The Best UK Savings Accounts Today
Halfway through the year, these are currently the best savings accounts in 2023 (all interest rates are shown gross AER, and are variable rates unless otherwise stated):
Best Easy Access Accounts
There are some great rates available if you want to retain easy access to your cash. Here’s our pick of the best:
- Shawbrook Bank pays 4.35%. You can deposit between £1,000 and £85,000. If you wish to withdraw money, you must withdraw a minimum of £500. Applications can be made online.
- Coventry Building Society pays 4.3%, and you can deposit as little as £1 to as much as £250,000. You can make six penalty-free withdrawals. Over this, you’ll lose 50 days of interest on the amount withdrawn. Applications can be made online.
- Like Coventry Building Society, Principality Building Society pays an interest of 4.3%, though for deposits up to £1 million. However, you cannot have a joint account (applications are online) and you are restricted to only two withdrawals per year.
- Yorkshire Building Society offers a 4.25% easy access account, with deposits of between £1 and £500,000 and online application. You may make unlimited withdrawals without loss of interest.
Best Regular Savings Accounts
If you can save a regular amount each month, you can earn more than 7% on your savings. Even some of the big banks pay more than 5%. Here are the top five UK savings accounts for regular savers:
- If you have been a member of Skipton Building Society since 31st May 2023, it offers 7.5% fixed for a year. You’ll need to pay in up to £250 a month, though you can take a deposit holiday. You can close the account at any time, though you cannot make ad-hoc withdrawals.
- First Direct offers 7% fixed for a year if you can save up to £300 per month. Your minimum deposit is £25 per month, and you won’t be able to skip any months. Like Skipton’s regular saver account, you cannot make penalty-free withdrawals. However, you cannot close the account early.
- Lloyds Bank has joined the chase for regular savers with an account that pays 6.25% fixed for a year. You can deposit up to £400 per month, miss payments, and withdraw cash without penalty. To open this account, you will need to have a Lloyds CLUB account.
- NatWest offers a variable rate (currently 6.17%) on balances up to £5,000 with a monthly deposit amount of up to £150. Like the Lloyds account, you can miss months and make penalty-free withdrawals.
- Beehive Money pays 6% fixed for a year, with a maximum regular deposit of £250. You can miss payments but cannot withdraw penalty free.
- Halifax offers 5.5% interest on regular payments of up to £500. You can miss two months. Though you cannot make withdrawals, you can close the account early.
Best Fixed-Rate Bonds
If you are willing to lock your money up for two years, you can earn up to 6.15% with the following financial institutions in the UK (all are FCSC protected):
- FirstSave – 6.15% for amounts between £1,000 and £2 million
- Atom Bank – 5.95% for amounts between £50 and £100,000
- Oak North Bank – 5.92% for amounts between £1 and £500,000
- Vanquis – 5.90% for amounts between £1,000 and £250,000
- United Trust Bank – 5.90% for amounts between £5,000 and £1,000,000
Best Notice Savings Accounts
There are various notice periods on notice accounts. The longer the notice period, the higher the interest rate will be. For ease of comparison, we’ve compared savings accounts with a 90-day notice period and compared the AER (Annual Equivalent Rate):
- Bank of London and The Middle East (BLME) – 5.09%. Opening balances of £10,000 to £1,000,000. Interest is paid quarterly.
- DF Capital ─ 5.05%. Opening balance of £1,000 to £250,000. Interest is paid monthly.
- FirstSave – 5%. Opening balances between £100 and £2,000,000, with interest paid annually.
- Vanquis Bank – 4.9%. Opening balances of £1,000 to £250,000 with interest paid monthly.
- Oxbury Bank – 4.63%.Opening balances of between £1,000 and £500,000 with interest paid monthly.
Best Savings Accounts for Children
You may get even better savings rates for your children than you do yourself. If your children’s savings aren’t in one of the following accounts, they are missing on valuable interest:
- HSBC ‘My Savings’ easy access account pays 5% on balances between £10 and £3,000, though this falls to 1.6% on balances above this. This account also offers a debit card, which helps children between 7 and 17 learn how to budget and spend wisely. If you have an HSBC account, you can open this account for your child online, otherwise you’ll need to go into a branch.
- Halifax pays 5.5% on its kids regular savers account. This account lets your child (up to age 15) deposit up to £100 per month. This is a pure savings account, with no withdrawals allowed, though you can close the account early without penalty.
- If your child has between £500 and £25,000 to save, is 15 years old or under, and wants to lock their money away for two years, the Saffron Building Society Two Year Fixed Rate Children’s Bond pays 4.3% interest. This account can be opened via post of in branch.
Here, we’re comparing cash ISAs, across the following categories:
- Easy access
- Fixed rate
- Lifetime ISA
- Junior ISA
For easy access ISAs, the current winner is Coventry Building Society. This ISA account allows you to start with as little as £1 and earn 4% with no notice period for withdrawal – though you can only make six withdrawals before you are penalised. You can apply online. If you wish to benefit from unlimited withdrawals, Marcus from Goldman Sachs pays 4% interest.
Moving to fixed-rate ISAs, and once again Coventry Building Society takes top spot. Its fixed-rate ISA maturing in September 2024 will earn you 5.4% with deposits of as little as £1. You can apply online, in branch, or by post. Interest is paid either monthly or at maturity, though if you make an early withdrawal, you will lose 90 days’ interest.
Moneybox’s Lifetime ISA pays 4%, though this includes a 0.75% bonus for the first 12 months. It’s an instant access ISA, though you’ll need to be careful of penalties if you don’t use the funds toward buying your first home or your retirement.
Junior ISAs are currently paying up to 5.1% with minimum deposits from £1. The best of the bunch is Bath Building Society. With a minimum deposit of £1, you can open this Junior ISA in branch or by post.
Best Business Savings Accounts
While businesses don’t fare quite as well as individuals in how much interest you can earn on business savings, it’s still worth putting surplus capital to work for you:
- The Aldermore Easy Access Issue B can be opened with only £1,000 and earn 3.05% interest.
- Redwood Bank’s 95-Day Business Savings Account pays 3.75% for balances of £10,000 or more, with a 95-day notice period.
- If your business is cash-rich and has no plans to use capital in the next two years, Redwood Bank’s 2-Year Business Savings Bond could be what you need. It pays 4.85% for deposits of £10,000 and more.
Interest Rates and More – Key Considerations for Saving Effectively
If you don’t have your cash in the best savings account, all your hard work at budgeting and saving is wasted. It might surprise you what a significant difference a little extra interest can make. Here’s how £100 deposited in a savings account would grow at different interest rates over 20 years (rounded to the nearest £1):
|Interest Rate on Your Savings|
You want a real-life example?
As I’m writing this, most banks pay around 1% interest on their instant access savings accounts. You could earn 4.35% in the best instant access account:
- Over 10 years, save £100 with your bank at 1% and you’ll earn £10.46 in interest.
- In an account paying you 4.35%, in 10 years that £100 would have earned £53.08 in interest.
- That’s a difference of £42.62.
No wonder those bug bank fat cats get such huge bonuses. They’re not doing anything special for their money. They just need to sit back and rely on us being too lazy to switch to higher savings rates.
However, it’s not only interest rates that you need to consider when choosing a savings account. Here are the other considerations you’ll need to make.
No one likes to pay more tax than they must, and there is some great news for savers. You can pay less (or no tax) on the money you have saved by using your tax allowances. It can get a little complex, but here are the bare bones:
Starting Rate for Savings
You have a starting rate for savings interest of up to £5,000. For every £1 of other income above your personal tax allowance, this is reduced by £1. Here’s the example the government shows on its website:
- You earn £16,000 of wages and get £200 interest on your savings.
- Your Personal Allowance is £12,570. It’s used up by the first £12,570 of your wages.
- The remaining £3,430 of your wages (£16,000 minus £12,570) reduces your starting rate for savings by £3,430.
- Your remaining starting rate for savings is £1,570 (£5,000 minus £3,430). This means you will not have to pay tax on your £200 savings interest.
With a personal tax allowance of £12,570, if you earn £17,570 or more (including interest income) you may pay tax on your savings interest.
Personal Savings Allowance
However, you might also receive up to £1,000 of interest tax free. This depends upon which tax band you fall into:
- Basic rate taxpayers can earn £1,000 interest tax free
- Higher rate taxpayers can earn £500 interest tax free
- Additional rate taxpayers will pay tax on all interest earned at their usual income tax rate
The interest that is included in your personal savings allowance includes all interest you earn from:
- Bank and building society accounts
- Savings and credit union accounts
- Open-ended investment companies, investment trusts and unit trusts
- Peer-to-peer lending
- Trust funds
- Payment protection insurance (PPI)
- Government or company bonds
- Life annuity payments
- Some life insurance contracts
In other words, pretty much every form of interest-bearing savings product available to you.
Note also that children’s savings accounts are taxable!
Access to Cash
Another thing that you’ll need to think about is whether you’ll need to access your savings. The longer you can lock up your money, the higher the interest rate you are likely to receive. However, if you need to withdraw money early, you could be penalised and receive less (or no) interest.
When deciding what access to your money you need, ask these questions:
- Do you have enough immediate cash available to cover financial emergencies?
- Have you got enough cash available to pay three months of essential outgoings (for example, should you lose your job)?
- Do you have any known expenses in the next three to six months?
Add all of this up, and this is the amount of cash savings you should aim to keep in an instant access account.
Savings Style and Reason for Saving
You should also consider how you plan to save:
- Will you be saving regularly from your monthly salary, for example, or will you be saving irregularly from bonuses or commissions at work or when you have the funds to save?
- You have received a windfall from an inheritance that you wish to set aside.
- You want to save for a child, or toward a deposit for your first home.
Whatever your savings style and your reason for saving, there is an account type that is ideal for your needs.
Safety of Your Savings
Finally, you also need to consider the safety of your money. If the interest rate sounds too good to be true, it is. When you save with a UK authorised financial institution, you have protection under the Financial Services Compensation Scheme (FSCS).
The FSCS protects you against unexpected events, such as the bankruptcy of the banks with whom you are saving. If the worst should happen, you’ll receive up to £85,000 of your savings. This scheme applies per banking group – so check that the banks/building societies you are saving with are separate entities and not under the same umbrella.
All the savings accounts we have highlighted in this article benefit from FSCS cover.
5 Steps to Saving Successfully
I hope that by now you are champing at the bit to do something about your poorly performing savings. Just a few minutes could make an enormous difference to your long-term financial wellbeing.
Before you rush to open a new savings account and take advantage of the best savings rates today, take a deep breathe. Now relax, and think ‘savings strategy’. Here’s my five-step formula for successful saving:
Step 1: Set your savings goals
Why are you saving? Is it a long-term goal (to pay for a child’s education, perhaps) or to save for Christmas? Getting clear about your financial objectives will help you choose the right account (or accounts) for your spare cash and regular savings. Here are a few sample goals to get you thinking:
- Building an emergency fund so that life’s twists and turns don’t cause you financial hardship
- Saving for a deposit on your first home
- Putting money to one side to fund a once-in-a-lifetime holiday
- Saving for a new car
- Setting aside money for a special occasion, like a major anniversary or birthday
Step 2: Figure out how much to save
Now, work out how much you must save. This will help you budget to save first and spend after (I call it paying yourself first.)
Do you have any existing savings that you can use? Will you be saving regularly?
If you find it challenging to save money, read our article ‘How To Save Money’ for inspiration. Even if you are on a low income, there are many ways to spend less and save more – hundreds, perhaps even thousands of pounds a year.
Step 3: Weigh up all the savings considerations
Now, work your way through the list of key considerations for saving effectively that I laid out above:
- Interest rates
- Access to cash
- Savings style and reason for saving
- Safety of your savings
Step 4: Review savings accounts
It’s now time to review potential accounts with your goals, savings amounts, and the savings considerations in mind. Here’s how to do this:
- First, look for the type of savings account that suits you savings goal.
- Next, look for the highest interest rate available.
- Now, consider restrictions and limits, such as the amount to deposit or penalties on withdrawal.
- Consider any bonuses, like an interest bonus to open the account or other perks.
- Ask yourself, ‘Does this account fit my needs?’ If it does, then it’s the account for you. If not, repeat the above steps.
Step 5: Review your accounts regularly
You get your car serviced regularly. You have a regular health check. You sit down with your boss for an annual review. If you own your own business, you constantly review how things are going. You check your boiler, gutters, windows, and doors, etc. in your house throughout the year.
Don’t neglect your savings.
A regular review will ensure that you stay on track and your cash is earning the most interest it can in the most tax-efficient way possible. It’s going to help you stay on track towards your financial goals, and make sure you adapt your plan as your life evolves and your priorities shift.
A Savings Platform Can Make Savings Reviews Easier
Reviewing your savings accounts doesn’t have to be hard work. You can gain access to a good range of savings accounts by using a savings platform ─ an app that connects to partner banks and building societies.
When rates change, instead of the hassle of closing and opening accounts and transferring money between them to get the best interest rates, you can administer your savings accounts with a click of a button.
It doesn’t eliminate all the legwork (a savings platform won’t link to every single bank or building society, only its partners), but it does make your job of keeping on top of your savings much easier.
Financial institutions that offer savings platforms in the UK include:
- Hargreaves Lansdown
- Raisin UK
- AJ Bell
- Interactive Investor
Bonus Savings Advice for Low Earners
Just because you don’t earn mega bucks does not mean you can’t save money. If you receive any of the following, you can open a government-sponsored ‘Help to Save’ account and earn the equivalent of up to almost 19% interest over four years:
- Working Tax Credit
- Child Tax Credit
- Universal Credit
If you receive payments as a couple, you can both open a Help to Save account.
Here’s how it works:
- Save between £1 and £50 each month. You don’t have to pay money in every month.
- Continue to save for two years. You can withdraw money at any time.
- At the end of two years, you’ll receive a bonus of 50% of your highest balance in the previous two years.
- Continue to save up to £50 per month for another two years.
- You can still withdraw money during this time.
- At the end of the fourth year, you receive a 50% bonus on the difference between the highest balance in the first two years and the highest balance in the second two years.
My son and his partner have opened their Help to Save accounts. They are both saving the maximum of £50 per month. At the end of four years, they will have deposited £4,800 between them and received £2,400 in bonuses. You simply cannot get that guaranteed return anywhere else, even if you’re a millionaire!
Please, if you are on a low income, get the savings bug and start your journey toward a brighter and more financially stable future with a Help to Save account. You can find more information about this incredible savings opportunity in our article ‘All You Need To Know About The Help To Save Scheme’ or on the government website.
What Type of Savings Account Is Best for You?
Let’s look at the distinct types of savings account you can use, including the pros and cons of each.
Current Account Savings Accounts
Most bank accounts include a savings account facility (though you may need to set this up).
These are great if you want to transfer money between your current account and savings account. You’ll retain easy access to your savings, too. However, you’re very unlikely to receive anything near a competitive rate of interest.
Instant/Easy Access Savings Accounts
Whether you have a lump sum to save, or wish to make regular or ad-hoc deposits, an instant access savings account may be ideal if you wish to retain access to your money. This type of account helps you to keep your emergency funds separate from your current account while maintaining access to them.
You should be able to get a much higher rate of interest than in a current account savings account, but not as high as you can achieve in other accounts. While you retain access to your account, some instant access accounts may limit how many times you can access your savings in any year, or how much you can withdraw before being penalised with a deduction of interest.
Regular Savings Accounts
If you can commit to paying in a regular amount each month, this type of account will usually pay a higher rate of interest. Open the account, set up a direct debit to deposit on the day you get paid, and saving is made easy.
Like instant access accounts, make sure you understand the terms and conditions before opening. You may be restricted on how much or the number of withdrawals you can make.
Sometimes, banks offer a bonus rate of interest for a few months for new accounts. This may look exciting, but be wary of the regular interest the account pays after the bonus term has ended.
If you have money to salt away for a year or more, but don’t like the thought of risking an investment in shares, than a fixed-rate bond may be for you. You’ll usually get a better rate of interest.
However, you won’t have access to your money, and if interest rates rise you won’t benefit from potential higher interest income.
On the other hand, you’ll know exactly what you’re getting at the end of the term of the bond, which could be perfect if you are saving for a specific expense at a specific time.
Notice accounts pay some of the best interest rates available. They are effectively a half-way house between instant access accounts and fixed-rate bonds.
With these accounts your money is not locked away until the end of a set term, but you must give a fixed notice period of withdrawal (for example, 90 days, or 120 days).
Consequently, this type of account is not suitable if you are likely to need access to your money instantly.
Savings Accounts for Children
These accounts are great to help teach children the art of saving money. They are like savings accounts for adults, giving easy access to money, and often paying good rates of interest.
Sometimes you’ll find that a child will receive some ‘freebies’ when they open a child savings account (or you open one on for them).
Individual Savings Accounts (ISAs)
ISAs are the most tax efficient form of accessible saving and investing available to UK residents. You won’t pay tax on income (interest or dividends from shares or income from bonds) held in the ISA. If you have a stocks and shares ISA, you won’t pay tax on any capital gain you make.
You’re allowed to invest up to £20,000 per year into an ISA, so, over several years you could build up a significant tax-free income or capital gain.
However, the £20,000 limit is based on gross deposits. If you have deposited £20,000 in a tax year and withdraw £10,000 in the same tax year, you cannot then make further deposits into your ISA until the following tax year.
The types of ISA you can open include:
- Cash ISA – for holding cash. Fixed-rate ISAs usually pay a higher rate than easy access cash ISAs.
- Stocks and Shares ISA ─ for longer-term investment, with your money at risk.
- Junior ISAs – allowing you to save/invest up to £9,000 a year for a child.
- Lifetime ISAs – especially designed for if you are saving toward a deposit on your first home, or toward retirement. You can save up to £4,000 each year, and receive a 25% bonus to your savings. However, if you withdraw the cash for any reason other than buying a home or retiring, you’ll pay a withdrawal charge of 25% (meaning you could lose money).
Because of its tax advantages, an ISA should often be your primary savings/investment account.
However, the caveat that I would place on this is that you should keep a sufficient emergency fund in readily accessible cash, and this might be better outside of an ISA depending on your personal financial circumstances. Remember, too, that ISAs cannot be held jointly.
Business Savings Accounts
Business savings accounts work like personal savings accounts, but are specifically designed for your business. The three main types of business account are:
- Easy access business savings accounts
- Fixed-rate business savings accounts
- Notice business savings accounts
Rather than have cash sitting in your business current account and earning nothing, shouldn’t you open a business savings account? Follow the key considerations as you would for your personal savings, except shape them for your business needs.
The Bottom Line
Cash savings are the first major step toward financial wellbeing and a financially secure present and future. With cash in the bank, life’s emergencies won’t become financial crises.
With the Bank of England increasing its base rate, banks and building societies are becoming increasingly competitive in the savings market. You can now earn interest rates on your cash savings that haven’t been seen for years. To do so, you must put in a little effort.
By understanding your savings goals and budgeting to save, you can ensure your money is in the right type of savings account and earning the highest rate of interest. Moreover, you can make certain that you are protecting as much of your cash savings from tax as possible, too.
If you have savings already, it’s time to review if your money is working as hard as it can for you. If you are just starting out on your savings journey, you’ll want to make sure that you are saving in the best way possible.
The tips, advice, and list of best UK savings accounts for all occasions in this article will help you, whatever your current personal financial situation.