With the base rate at a historically low 0.5%, and most forecasters predicting no change for 2011 at least, high interest accounts are decidedly thin on the ground. Or at the very least, you have to change what you consider to be a high interesting savings account.
Standard savings accounts that allow you to withdraw your money whenever you like, without penalties, are not going to get you a good return on your savings. And with inflation on the up, you really want to be attracting interest higher than the current rate of 3.7% to be making a profit in real terms.
The only way to get interest rates at this level currently is to deposit your money into a fixed rate savings account or an ISA. Either way, the longer you can set your money aside, the higher the interest rate you’re likely to achieve, with some accounts paying over 6% for terms of 5 years or more. If however you need access to your money sooner, a 1 year fixed term savings account will only yield an interest rate of around 3%.
That being said, even if you can afford to lock your money away for 5 years or more, you may not want to. Although the base rate is highly unlikely to increase this year or longer, it will go up at some point, in which case your hard-won rate of 6% will look rather paltry within the medium to long term.
Putting your money away for a short term high interest account may be the better option. Although you will be making a loss in real terms, you will still be earning interest far higher than an instant access savings account, and you will retain the flexibility to switch to a higher interest savings account when the base rate finally increases.
There is no short answer to finding a high interest account for you. You have to decide for yourself the best trade off between access and future proofing, perhaps spreading your cash between various accounts to give you a mix of flexibility and steady interest income that may be eclipsed in the future.
Whatever you decide to do, make sure you shop around and stick with a bank covered by the government’s guarantee.
About the Author
Rebecca Hall Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.
