Cash savings rates have been resurgent in recent weeks after falling for more than a year. With inflation of 4% rumoured to be on the horizon by the end of the year, now is a good time to make sure your cash is working for you.

The UK as a whole saved a lot of spare cash during the pandemic, but for many that’s just sitting dwindling in their bank account. For most this means it will be earning 0.01% interest, far below the target 2% rate of inflation and vastly below the 4% expected this year.

So what rates can you get and where?

I want easy access…

The rates on easy-access accounts have lifted a little in recent weeks – you’re still not going to get very much but it’s much better than leaving it in your current account. The top rate of 0.65% comes from Tandem Bank, which allows anywhere from £1 to £250,000 to be saved but can only be opened via an app on your phone. The next best option is Cynergy Bank, which can be opened online and pays 0.6%. If you opted for the Tandem bank account and moved £10,000 from your current account (paying 0.01%) you’d go from earning £1 a year interest to £65 a year.

If you want an account you can open in branch, ICICI Bank is paying 0.5% and lets you do just that, although it only has a handful of branches around London. For another in-branch option it’s worth checking out your local building society, as some offer competitive rates. Otherwise Virgin Money has branches across the UK and pays 0.35%.

Another option for those with a small amount to save is Virgin Money’s current account, which is currently paying 2% interest, but only up to £1,000. You don’t need to do a full current account switch (although if you do it is offering a £150 experience day gift card) and when you open the current account you can also access its easy-access savings account paying 0.35% (although this is less than the current top rate).

I don’t mind tying my money up for longer…

The fixed rate market is where competition has been hotting up, with banks raising their rates by 0.03 percentage points at a time just to oust their competitors from the top of the best buy tables.

At one year, the top rate is from SmartSave, which is paying 1.41% but the account must be opened with £10,000 and the maximum you can save is £85,000. The account is opened and managed online. For those who want to save less than £10,000, Zopa has the next best rate, paying 1.4% on anything over £1,000 (up to £250,000).

If we compare this to the highest rate from a high-street bank, you can get 0.2% with Metro Bank – showing how much it pays to bank online.

At two years the best rate is from Zopa, paying 1.67%, again with a £1,000 minimum on the account. Or if you have less to save then Tandem Bank has the best rate, paying 1.57% and having a minimum investment of £1.

You get slightly more for locking away for three years, with 1.76% from Zopa, who has the best rate. While at five years there’s another minimal increase to 1.81% (also from Zopa).

Who are these banks I’ve never heard of?

Much of the competition in the savings market at the moment is coming from challenger banks or start-ups. This means many of the names will not be familiar to savers.

High-street banks, which are much more well-known names, are benefitting from people leaving money in their current accounts and so don’t need to compete for your money by offering better interest rates.

However, these smaller, start-up banks are keen for your money and so are competing with each other by hiking their rates. The downside for some is that many of these banks only operate online, so there’s no branch to go into.

All the banks mentioned in this article are FSCS protected, so the same level of compensation protection as a high-street bank, but this is something you always
want to check when you’re moving to a new provider who you might not have heard of before.

What about Premium Bonds?

Premium Bonds from NS&I don’t have an interest rates, but instead you’re entered into a prize draw with the chance of winning a number of tax-free prizes each month, from £25 up to £1 million. When savings rates were better it was likely better to lock in a guaranteed interest rate if you wanted to maximise the return on your savings.

However, as savings rates have fallen dramatically in the past year or so, Premium Bonds looked more attractive. NS&I works out the average chance of winning a prize and gives an effective interest rate for it, to serve as a comparison with savings accounts, and currently it’s 1%. So if you want an easy-access account and want to take a bit of a gamble with the return you’ll get, this could be an option.

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