Savings Rates Surpass 5% as Institutions Offer Higher Returns
Savers can now access fixed-rate accounts yielding over 5%, with some cash ISAs matching these returns, offering a way to outpace inflation.
Fixed savings rates have exceeded 5% as a number of banks and building societies increase their offerings. Investec Save is currently providing a 5% rate on its one-year fixed account for deposits of at least £5,000.
Two-year and three-year fixed accounts offer slightly higher returns, with GB Bank offering 5.03% for two-year terms and West Brom Building Society providing 5.15% for three-year terms. For savers willing to commit their funds for a longer period, a five-year fix from West Brom Building Society is available at 5.2%, with a minimum deposit of just £1.
On the easy-access front, Spring's Accelerate Saver account continues to offer a variable rate of 5% on balances between £1,000 and £5,000, though this rate is noted as being for a limited time. With inflation recorded at 3.1% in August, these higher savings rates are crucial for maintaining the spending power of savers' money.
These accounts are not tax-free. Interest earned above an individual's personal savings allowance is subject to taxation.
The best available rate for a tax-free cash ISA is also from West Brom Building Society, matching its taxable account with a 5.2% rate for a five-year term.
According to Moneyfacts, an estimated £300 billion sits in current and savings accounts earning no interest. Shifting this money into accounts offering even a 4% interest rate, which is achievable, could generate an additional £12 billion in interest for UK savers annually.
Rachel Springall, finance expert at Moneyfacts, advised that savers should aim for a return of at least 4% on a flexible easy-access account that permits unlimited withdrawals, allowing funds to be moved between savings and current accounts as needed.
Recent months have seen a surge in savings rates, with both large and small financial institutions participating. In July, Investec introduced a three-year fixed saver at 5%, reportedly the first time this rate had been offered on such an account in over two years. In August, reports highlighted 'secret' savings accounts from major banks offering significantly higher interest rates, often not advertised through standard channels. For instance, NatWest's First Active account initially offered 4.5% but has since decreased to 4.05%.
Among high-street banks, NatWest and Nationwide are leading in cash ISA offerings. NatWest provides competitive one and two-year fixed rate ISAs at 4.72% and 4.75% respectively. Nationwide offers attractive three and five-year fixed ISAs at 4.65% and 4.7%.
Savers can achieve higher rates by opting for less familiar providers. Vida Savings offers leading one and two-year ISA accounts at 4.8% and 4.9% respectively. Trading 212's Accelerate Saver offers a 4.61% rate, which includes a 1.01% bonus for 12 months.