Best high interest accounts

Shelter up to £20,000 from tax with an Individual Savings Account (ISA)

By Peter Carr Friday 2 February 2018
 

Life hasn’t been easy for savers looking for decent high interest accounts over the last few years. But the difference between the best and the worst savings accounts is still significant.

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The rates of high interest savings accounts had been down in the doldrums for some time, but with the recent base rate rise in November 2017, we could start seeing savings get a modest lift across the UK.

Additionally, the introduction of a new Personal Savings Allowance (PSA) in 2016, means that basic-rate taxpayers can earn £1,000 of savings interest without the HMRC taking a slice, and higher rate taxpayers (those earning over £45,001) can earn £500. Those who earn a high salary (over £150,001) are not eligible for the personal allowance.

And the fact you can shelter up to £20,000 from the taxman through an Individual Savings Account (ISA) this tax year is another godsend – as you get to keep every penny of the interest you earn.

Here’s our guide to the best high interest accounts that you can use to grow your savings pot.

Cash ISAs

Cash-ISAs allow you to earn interest tax-free so, it makes sense to max out your ISA allowance before stashing money into a standard savings account.

Since 2014, you have been able to hold all of your ISA allowance in cash. ISAs then became even more flexible on April 6, 2016: if you hold cash in either an investment, cash, or Innovative Finance ISA, you can take this cash out of your account and put it back in within the same tax year without this affecting your annual allowance.

Not all ISA providers may offer this flexibility, so check with your bank or building society before withdrawing any money. 

Historic growth of ISA limits

Current accounts

If you have used up your yearly ISA allowance, you might think a standard savings account is the next best place for your nest egg.

But these days, the best interest rates can actually be found on some current accounts. Some pay up to 5.00% on smaller balances of a couple of thousand, or 3.00% on balances of up to £20,000.

You usually have to switch your current account completely (from one provider to another) to benefit from these deals. Thanks to the introduction of the Current Account Switch Service (CASS) in 2013, this process is now hassle-free and can be carried out in just seven working days.

Plus, you may even get a nice kickback for swapping providers as many offer incentives to switch. Read more about this on our current accounts guide.

Easy access accounts

Also known as no-notice accounts, easy access deals give you instant access to your cash whenever you want it. This ease of access makes them a great way of saving for emergencies - like a broken boiler or car repairs, for example.

However, the bad news is that interest rates on easy access accounts are generally quite low – particularly if you don’t shop around for the best deal. The better-than-average rates are usually reserved for internet-only accounts, and some employ introductory bonuses that boost the advertised rate – although these normally run out after the first 12 months.

But even if there isn’t a bonus, rates tend to be variable so keep a close eye on what the account is paying and switch deals if it’s no longer any good. It’s really simple to do this via MoneySuperMarket’s easy access comparison service.

Some accounts that call themselves easy access might limit the number of withdrawals you can make each year without losing interest – so check this too.

Notice accounts

As their name suggests, notice accounts mean you’ll generally need to give between 30 and 120 days’ notice to the bank to withdraw your money. This means these high interest savings accounts won’t be suitable if you need access to your cash in a hurry – as the terms state you will lose interest if an emergency withdrawal is made.

While notice accounts tend to offer higher interest rates than those that provide instant access to your money, this isn’t always the case – so check out easy access rates too before applying.

And as most notice accounts have variable, rather than fixed rates, it’s important to monitor your returns and switch if the deal is no longer competitive.

Interest rates: how much you could earn over 3 years

Regular savings accounts

Even though the base rate has risen to 0.50%, it can still be difficult to get a decent savings rate as banks and building societies are sometimes slow to increase their rates accordingly. But you might find that regular savings accounts have a higher interest rate than most other savings accounts.

And because they also require a set monthly payment – often between £25 and £250 – they are a great option for building up savings over a set time period.

But while rates are higher, the overall benefits can be limited as you will only earn interest on the amount in the account as it builds up.

Plus, it’s worth noting that you will be penalised for missing a payment (usually losing interest, possibly for the rest of the term), and you won’t have access to your money for the typical 12-month term – perfect for those who might be tempted along the way.

Fixed rate bonds

A fixed rate bond is a savings account that offers a fixed interest rate on your cash for a set period of time, let’s say between one and five years. The pay-off for giving up access to your money by paying into an account of this kind is that you normally get a higher rate of interest than you would on an easy access or notice account.

And, generally speaking, the longer you’re prepared to lock your cash away for, the higher your return will be. That said, you will have to pay a penalty should you need to access your money within the term.

As most fixed rate bonds do not allow you to add to your balance, they are also only suitable for people with a lump sum to invest. If you wanted to add to your balance frequently, then a cash ISA could be a good way to go.

Compare fixed rate bonds now.

Savings accounts pros and cons

 

MoneySuperMarket can help you find the best deal on your savings because it allows you to compare rates on a wide range of accounts. The service is quick and easy to use, plus it’s free and independent, saving you money all round.

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