Anyone who has taken even the most cursory of looks at current savings account rates will know that it is not a saver’s market. The staggeringly low base rate is designed to make borrowing cheaper and encourage spending (by discouraging saving) to keep the economy afloat. This means that anyone with a large amount of capital looking to make a decent return will find it hard to even get interest that keeps up with inflation.
It’s always been the case that the longer you’re prepared to lock your money away for, the higher the interest rate you’ll be rewarded with, however, that has never been truer than now, and if you want to get inflation beating savings account rates, you’ll have to keep your cash out of your wallet for at least 3 years.
Easy access accounts are currently savings account rates of up to 2.8%, usually with some guarantees or bonuses included. Although the name implies that you can easily access your money with these accounts, most have restrictions, possibly as constrictive as only allowing one penalty fee withdrawal per year.
Cash ISAs offer easily the best deal for savers. Although the headline rates are not much better than for easy access accounts, coming in at just under 3%, the interest from a cash ISA is tax-free.
However, the sour for the tax-free sweet is that there is a limit to how much you can put in a cash ISA, currently standing at £5,100 (although this is set to change to £5,340).
Fixed Rate Bonds
Fixed rate bonds offer the best taxed savings account rates available. The price you pay is having your money locked away. Current highs for short term (1 year) bonds are 3%, whilst longer term (3-5 years) reach as much as 5%.
It’s worth remembering though that interest rates will increase, and while a 5% interest rate will keep you above inflation (all being well), you may regret it in a year or two.
Depending on how much money you have to save, and how long you can keep it out of reach, the best saving strategy currently is probably to spread it around different accounts with different terms.