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Cash Isa rates and short-term savings accounts hit record high

How to find the best savings account for you

There’s finally good news for savers, as interest rates on instant-access savings account, one-year fixed-term bonds and cash Isas all hit their highest point since 2016.

In October, one-year fixed-term bonds were up to an average rate of 1.42%, while instant-access accounts had an average rate of 0.62% – both the highest since January 2016.

Similarly, one-year cash Isas now average 1.3%, the highest since March 2016, and instant-access cash Isas are now at 0.91%, the best since July 2016.

And these are just average rates, meaning much higher interest can be found from the top-paying accounts – and they’re still rising.

So, could this mean you’re missing out by locking up your cash for several years in a long-term bond?

Which? reveals where you can find the top-rate short-term accounts.


Top-rate instant-access savings accounts

The table below shows the five top-rate instant-access savings accounts. The links take you through to Which? Money Compare.

Account AER Terms
Marcus by Goldman Sachs online savings account 1.5% £1 minimum initial deposit. AER reduces to 1.35% after 12 months.
Bank of Cyprus online easy access account Issue 19 1.47% £1 minimum initial deposit. AER reduces to 1% after 12 months.
The Family Building Society Premium Saver 1.45% £5,000 minimum initial deposit.
Shawbrook Bank Easy Access Issue 13 1.4% £1,000 minimum initial deposit.
Tesco Bank Internet Saver Account 1.4% £1 minimum initial deposit.

Source: Which? Money Compare. Correct 31 October 2018.

As the table shows, the top-rate accounts in this area greatly outstrip the average October rate mentioned above.

There’s been a shake-up in this market recently, mostly since the launch of the Goldman Sachs Marcus account in September.

One thing to look out for is accounts with bonus terms. While the Marcus account offers the second-highest rate, this will drop to 1.35% after 12 months – at which point you might want to switch elsewhere to make sure you’re getting the most for your money.

It’s a similar story for the Bank of Cyprus easy access account, which drops to just 1% after a year. However, these two accounts with bonus periods are also the only two with £1 minimum initial deposits, which may be better for savers with small deposits.

We also recently wrote about whether you’re better off going for an account that pays monthly or annually – of these accounts, only Marcus by Goldman Sachs pays monthly interest.

Outside of the ‘top five’, other banks have also recently increased their rates. RCI Bank has upped the rate on its Freedom savings account to 1.37% and existing account holders will benefit from the rate rise, as well as new customers.

But as competition heats up, be aware that some of the top deals might not be around for very long.

Earlier this week, Nottingham Building Society launched a new instant-access account paying a market-leading 1.55% AER, but it was pulled after just two days due to high customer demand.

Top-rate one-year fixed-rate bonds

The table below shows the five top-rate one-year fixed-rate bonds.

Account AER Minimum initial deposit
My Community Bank 12 Months Fixed Term Deposits 2.1% £1,000
OakNorth 12 Month Fixed Term Deposit 2.02% £1,000
Zenith Bank UK Limited 1 Year Fixed Term Deposit Account 2.02% £1,000
Charter Savings Bank 1 Year Fixed Rate Bond 2.01% £1,000
Al Rayan Bank 12 Month Fixed Term Deposit 2% (EPR*) £1,000

*Expected Profit Rate. Source: Which? Money Compare. Correct 31 October 2018.

As the table shows, by locking your savings up for just one year, you could benefit from significantly higher interest rates.

However, you’ll either be unable to make any withdrawals during this time or you’ll have to forfeit some or all of the interest you’ve earned on your cash.

Before committing to any kind of fixed-term account, you should assess whether you’ll definitely be able to leave the money alone for the duration of the term.

All of these accounts require savers to have at least £1,000 spare to save, which isn’t an option for everyone. Those with smaller deposits could consider Atom Bank’s 1 Year Fixed Saver, which also pays 2% and only requires a minimum initial deposit of £50.

Top rate instant-access cash Isas

The table below shows the five top-rate instant-access cash Isas.

Account AER Terms
Leeds Building Society Limited Issue Online Access Isa 1.38% £1 minimum initial deposit. £1,000 balance required for 1.38% AER; can have less, but balance will receive 0.05% AER.
Virgin Money Double Take Cash E-Isa 1.38% £1 minimum initial deposit.
Paragon Limited Edition Easy Access Cash Isa 1.37% £1 minimum initial deposit.
Yorkshire Building Society Single Access Saver Isa 1.35% £100 minimum initial deposit.
Al Rayan Bank Instant Access Cash Isa 1.35% (EPR*) £50 minimum initial deposit.

*Expected Profit Rate. Source: Which? Money Compare. Correct 31 October 2018.

Cash Isas have garnered little attention of late, due to rates lagging behind those of savings accounts. While this is still the case, they are creeping upwards.

These top-rate accounts, however, do come with some tricky terms.

For instance, the top account from Leeds Building Society is not a flexible Isa, so any money you withdraw will still be counted towards your overall £20,000 Isa allowance for the year.

Also note that, while you’re able to make unlimited withdrawals, you’ll only earn 0.05% AER if the balance slips below £1,000, which is a massive drop.

The Virgin Money account only permits two withdrawals per year – any more than this and you’ll have to close the account and transfer elsewhere, giving you very little flexibility.

Yorkshire Building Society’s Isa only permits one withdrawal per year, with no option for any extra access to your cash. This arguably pits it more closely with a one-year fixed-rate account on which you’d likely get a higher rate.

However, these cash Isas offer much more choice for those with smaller deposits, and have the additional benefit of being tax-free.

Any savings held within an Isa wrapper won’t be taxed, whereas profits made from cash in a savings account will attract tax if they exceed your personal savings allowance. Your tax-free allowance depends on how much income tax you usually pay.

Top-rate one-year cash Isas

The table below shows the five top-rate one-year fixed-term cash Isas.

Account AER Minimum initial deposit
Al Rayan Bank 12 month fixed-term deposit cash Isa 1.6% (EPR*) £1,000
Charter Savings Bank one-year fixed-rate cash Isa 1.6% £1,000
Paragon one-year fixed-rate cash Isa 1.55% £500
Post Office online one-year fixed-rate Isa 1.55% £500
Bank of Cyprus one-year fixed-rate cash Isa 1.55% £500

*Expected Profit Rate. Source: Which? Money Compare. Correct 31 October 2018.

Compared to one-year fixed-rate bonds, one-year cash Isas certainly look like a worse deal.

There’s not a huge amount of difference between the rates for instant-access and one-year fixed-rate cash Isas – and even less between instant-access savings accounts.

In fact, the Marcus by Goldman Sachs account is only beaten by a maximum of 0.1% by the top-rate account, yet offers instant-access to all of your cash. However, three of these require smaller minimum initial deposits and all have the tax-free Isa advantage, as mentioned earlier.

The Charter Savings Bank also has a high maximum saving amount, which means savers with large pots can save up to £1.5m tax-free.

Should I get a short-term savings account?

There are a number of pros and cons for opting for an instant-access or one-year fixed-term account over a longer-term bond or Isa.

The most obvious is that, as a general rule, the longer you lock away your cash, the higher rate you’ll get.

The table below shows the top-rate longer term fixed-rate saving accounts.

Account AER Minimum initial deposit
Ikano Bank 5 Year Fixed Saver 2.7% £1,000
Ikano Bank 4 Year Fixed Saver 2.45% £1,000
Al Rayan Bank 36 Month Fixed Term Deposit 2.4% (EPR*) £1,000
Al Rayan Bank 24 Month Fixed Term Deposit 2.3% (EPR*) £1,000

*Expected Profit Rate. Source: Which? Money Compare. Correct 31 October 2018.

We’ve only shown savings accounts in this instance because they beat current fixed-rate cash Isa rates.

As the latest inflation rate is 2.4%, locking up your money for between three and five years would make sure you beat it. Not doing so means your money loses value in real terms as goods and services get more expensive.

But, as rates seem to be on the rise, this could mean you’ll miss out on future offers that are even higher and offer more flexibility. So it is a risk.

What’s more, some savers may not be able to afford to pay in a minimum of £1,000 – and even more will not be able to guarantee that they can get by for several years without accessing their money.

We recently wrote about the 14 savings accounts with inflation-beating rates, so there are plenty of options out there.

Whichever account you consider, make sure you always check the terms and conditions to make sure it’s the right option for you.

You can use Which? Money Compare to search through hundreds of savings products.

Please note that the information in the table(s) above is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of the savings account provider before committing to any financial products.

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.

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