We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies. You can understand more and change your cookies preferences here.

Savings account numbers hit 1,700: how to pick the best deal

Savers have more choice but competition remains limited

Savings account numbers hit 1,700: how to pick the best deal

Savers have a choice of 300 more savings accounts than six months ago, as the number of offers on the market hits 1,700, according to data from Moneyfacts.

But while you might also expect higher competition to lead to higher interest rates, this hasn’t been the case – so finding the right deal is critical.

Despite top savings rates edging up in recent weeks, market average rates are lower than they were a year ago. To put this into context, the average instant-access account paid 0.57% at this time last year, compared to just 0.38% today.

Here, we highlight some of the best deals currently available and how you can make the most of your savings.

Find out more: Which Money Compare – 100s of savings and Isa products compared

Best savings rates on the decline

Even the best-paying accounts have seen rates decline. According to MoneyCompare, the highest rate instant-access account in January 2016 was offered by RCI Bank UK and paid 1.65%. Today, the top-paying account from Ulster Bank offers just 1.25% – a drop of 0.4%.

The bad news for savers doesn’t end there.

According to Moneyfacts, just 10% of instant-access savings accounts are paying 1% or more, down from 31% this time last year. What’s more, around a third of the market now pays less than the base rate of 0.25%.

What should savers do to maximise their returns?

Currently, there are no savings accounts or cash Isa deals that can beat or match the rate of inflation, which is currently at 2.6%. As such, it’s essential that savers regularly monitor the market and switch to a better paying savings account to avoid pitiful interest rates.

Fortunately, there are alternative ways to achieve inflation-beating returns on your savings.

Regular savings accounts

There are a number of regular savings accounts that pay more than inflation. First Direct, HSBC, M&S Bank, Nationwide and Santander all offer interest of 5% – but you need to be a current account customer to access them.

These accounts also limit savings to between £200 and £500 per month.

There are also two regular savings accounts, open to everyone, paying a rate above 2.6%.

Saffron Building Society pays 3.5% and allows you to save £200 per month (£2,400 a year)

Kent Reliance pays 3% and allows you to save £500 per month (£6,000 a year).

Current accounts

Bank Accounts are still offering eye-catching rates, albeit on limited balances.

Nationwide pays 5% in the first year, up to balances of £2,500, while TSB and Tesco Bank pay 3%.

The Santander 123 account pays 1.5% AER on balances up to £20,000, although it comes with a £5 monthly fee. Bear in mind that to qualify for interest, these accounts and many others will require you to make a minimum monthly deposit and set up a certain amount of direct debits.

How else can savers maximise their returns?

Utilise your personal savings allowance

The personal savings allowance may make traditional savings accounts more appealing for millions of people.  This is because basic-rate taxpayers will have no tax to pay on the first £1,000 of interest they earn in a single tax year. Higher-rate taxpayers will have no tax to pay on the first £500.

At current rates, this means it’s now possible to deposit tens of thousands of pounds in a traditional savings account without paying tax on the interest you earn.

Consider cash Isas

Isas continue to provide a tax-free shelter for your savings, regardless of how much money you accumulate over time. But although the personal savings allowance seems generous while interest rates are low, this may not be the case when they start to rise.

Isas remain an attractive option, particularly if you’re a higher-rate taxpayer or are likely to become one in the future. Your annual Isa allowance for 2017-18 is £20,000.  Many Isas now offer increased flexibility, allowing you to withdraw funds and replace them without it affecting your annual allowance, as long as you do so in the same tax year.

Which? Money Compare: instant-access cash Isas – compare hundreds of Isas

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

Back to top
Back to top