Savings rates are up - now make sure you're getting the most out of your money

02 July 2023 , 06:00

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Savings are getting better and better off the bank of multiple rate rises (Image: Getty Images)

With all of the focus on the Bank of England raising interest rates – 5% and counting – and stubborn levels of inflation, it’s easy to miss the one positive of the whole financial rollercoaster that we are all on.

Finally, it’s a good time to be a saver. Since the last financial crash in 2008, interest rates on savings accounts and ISAs have been rock bottom, causing despair for people trying to make their money work for them.

This sadly led to people taking risks they might not have considered before, from risky investments to out and out scams.

But now as the BoE base rate rises, savings rates are going up. So we should be celebrating right?

Well… not quite. What’s the problem?

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Banks and savings account providers have come in for a lot of criticism lately because they have not been exactly rushing to raise their interest rates.

This has caused consternation with the high street banks in particular, who have whopped up their mortgage and loan rates to well over the base rate, but not exactly done the same with their savings accounts.

Meanwhile bank account interest rates are pitiful.

This matters because if people who could afford it were encouraged to save rather than spend, it would go some way towards helping reduce interest. A point Martin Lewis made to the chancellor recently.

There are signs that this bad publicity is prompting a begrudging increase in some saving rates. But not lots yet.

So once again, if you want the best deal, it’s time to stop being loyal to your bank and shop around for the best options.

How do I find a good saving rate deal?

Nothing is ever straightforward, is it? So it won’t come as a surprise to you to learn that comparing savings rates isn’t clear cut.

But there are a few factors to consider before committing.

How much money can you comfortably save?
How much money can you ‘lock away’ for a period of time to get the best rates?
What if you have an emergency and need your cash?

Now let’s take a look at the different types of account and how they work.

Bank accounts

A standard bank account pays the worst rate of interest. It can also be very hard to work out what you might be saving each month because of the volume of transactions going through your account each week.

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However, there are some accounts out there that do offer better interest deals, or even cashback under certain circumstances.

If you’re thinking about switching bank accounts look for one that works harder for you.

Easy access accounts

If you don’t want to tie up your cash for a long or even short period of time then have a look at ‘easy access’ savings accounts. These offer relatively good rates of interest and you can make withdrawals.

But as with everything, there are caveats. Make sure you understand when the interest is credited to your account.

Many accounts also have rules around the number of withdrawals you can make each year without losing the interest.

On the plus side, if you do have an emergency, you can abandon the interest and get your hands on your cash.

Watch out for "introductory rates" designed to lure you in.

Pop the date in your diary when the good interest period ends as you’ll find the account reverts to a poorer rate automatically after.

Fixed rate accounts

A fixed rate account will allow you to ‘lock in’ your cash to get a better rate of interest.

These fall in to two main categories. Short term (7 to 30 days) and longer term (a year to 5 years or more).

A word of warning. Many of these fixed rate accounts literally lock your cash in for that whole period so you can’t access it.

Some might allow you to get your cash in some circumstances. However, expect big fees or significant or total loss of interest if you do.

You’ll get the best rates here, but you might want to consider only locking away a certain amount of your savings for this.

Notice accounts

A bit like a "lighter" version of a fixed rate deal, a notice account will let you get your hands on your cash after a pre-set "notice" period has elapsed.

The higher that notice period, the better the rate of interest.

Better for people who are worried about suddenly needing their money.

Individual Savings Accounts (ISA)

ISAs are basically a tax-free way to save. Though investment options are available the cash ISA is worth considering if you want to take advantage of these products and their tax benefits.

You can put up to £20,000 in each cash ISA every year. As with savings accounts, you can get easy access and fixed deals.

You can take out a new ISA each year but you can keep your cash in your existing ISAs "rolling over" so

if you have £20,000 plus yearly interest, this is "compounded" next year – you then get interest on the total savings plus interest the next year.

So your savings grow and grow.

Getting started and switching

MoneySavingExpert.com has an invaluable – and regularly updated - guide to all the best comparison rates.

Before you dive in though, remember those three things to consider I mentioned at the start of this article.

Have a think about how much money you can afford to lock away (and for what period) to get the best interest rates.

Don’t lock all of your cash away though. Have a think about what the following years might hold.

Factor in major lifestyle changes, like having kids, retiring, moving or changing jobs.

In just the same way as you would with an investment portfolio, you should think about diversifying your savings.

So some cash locked in, some easy access or maybe in a notice account.

If you are thinking of switching savings or bank accounts, it’s actually much more straightforward these days.

The Current Account Switching Service (CASS) states that the transfer should take seven days max.

When you open a find a new account, you choose a date to switch then your new bank takes care of the rest, including transferring over all of your regular payments.

Any payments that go to the old account after this should be redirected too.

Oh and if there are any cock ups, you’ll be refunded by your new bank if you incur charges or missed interest due to errors.

This applies to current and most savings accounts, though bear in mind notice accounts and specific savings accounts may take longer.

I’ve had loads of readers contact me who are worried about banks going under.

So just to reassure you, banks in the UK must be regulated by the Financial Conduct Authority (FCA), which means you should be able to go to the Financial Services Compensation Scheme (FSCS) if the bank collapses, protecting you for up to £85,000 per person, per bank.

But make sure you check that the new bank is UK regulated though as many of the best rates are with newer, online companies. Check before you transfer.