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High street savings rates hit an all time low: where can you find the best accounts?

Every big bank has reduced its instant-access rate to just 0.01% AER

High street savings rates hit an all time low: where can you find the best accounts?

Barclays cut the rate on its everyday saver account to just 0.01% AER last week; the last of the big high street banks to slash its rates.

This comes at a time when UK savers are putting away more money than usual. Savers paid £116bn into their savings accounts in June 2020, but £2.5bn was paid into instant-access accounts that don’t pay any interest, according to recent Bank of England figures.

Of the 910 cash Isas and savings accounts on the market, we found 52 accounts paying 0.01% AER or less – a factor contributing to average instant-access savings rates hitting just 0.22% this month.

But that doesn’t mean you should settle for such a measly rate. Here, Which? takes a look at what’s happening to the savings market and reveals where to find the best rates.


What’s happening to the savings market?

It’s no secret that now is not a good time for savers; 88% of cash Isas and savings accounts pay less than 1%, and average rates look like they’re going to continue to nosedive.

Why is this happening? Unsurprisingly, it’s all to do with the coronavirus crisis.

With rates already on a downward turn, on 19 March 2020, the Bank of England took the decision to reduce the base rate to a historic low of 0.1%, with an aim to make spending a more attractive option than saving and to keep the economy moving.

It didn’t take long for banks to start cutting their savings rates; just two months later in May, the average instant-access savings rate had fallen by 0.2%, while one-year fixed-rate cash Isas were down 0.23%.

Now, rates across all accounts are at their lowest point in at least a decade.

The graph below shows how average rates have changed over the past 10 years, using data from Moneyfacts.

Where to find the best savings rates

The table below shows the top rates across fixed-term and instant-access accounts, ordered by term. The links will take you through to Which? Money Compare, where available.

Account AER Terms
Bank of London & The Middle East Five-Year Premier Deposit 1.5% (EPR*) £1,000 minimum initial deposit
United Bank UK Five-Year Fixed Rate Cash Isa 1.21% £2,000 minimum initial deposit
Bank of London & The Middle East Four-Year Premier Deposit 1.45% (EPR*) £1,000 minimum initial deposit
Punjab National Bank Four-Year Fixed Rate Cash Isa 1% £1,000 minimum initial deposit
Bank of London & The Middle East Three-Year Premier Deposit 1.4% (EPR*) £1,000 minimum initial deposit
United Bank UK Three-Year Fixed Rate Cash Isa 1.1% £2,000 minimum initial deposit
Bank of London & The Middle East Two-Year Premier Deposit 1.35% (EPR*) £1,000 minimum initial deposit
Punjab National Bank Two-Year Fixed Rate Cash Isa 0.9% £1,000 minimum initial deposit
United Trust Bank One-Year Bond 1.1% £5,000 minimum initial deposit
Charter Savings Bank One-Year Fixed Rate Cash Isa 0.76% £5,000 minimum initial deposit
NS&I Income Bonds 1.16% £500 minimum initial deposit
NS&I Direct Isa 0.9% £1 minimum initial deposit

*Expected profit rate. Source: Moneyfacts. Rates correct as of 6 August 2020.

As the table shows, most of the top spots for fixed-term savings accounts are held by the Bank of London & The Middle East. This is an Islamic bank, which pays an expected profit rate (EPR), rather than an annual equivalent rate (AER). While this means the rate is not guaranteed, we’ve never heard of an instance where a UK bank hasn’t delivered on the advertised rate.

Note that your choices will be restricted if you have less than £1,000 to save, as only the two top-rate instant-access accounts will accept less than this to open an account.

The Which? Money Podcast

How do high street rates compare?

If you opt for the biggest high street banks, your chances of getting a top rate are virtually non-existent.

The table below shows the same top rates for fixed-term and instant-access accounts from the 10 biggest UK banks; Barclays, Bank of Scotland, Halifax, HSBC, Lloyds Bank, Nationwide, NatWest, Royal Bank of Scotland, Santander and TSB.

Again, the links will take you to Which? Money Compare where available.

Account AER Terms
TSB Three-Year Fixed Bond 0.5% £2,000 minimum initial deposit
TSB Three-Year Fixed Cash Isa 0.55% £2,000 minimum initial deposit
Barclays Two-Year Flexible Bond 0.6% £1 minimum initial deposit. You can make three withdrawals during the term of the bond.
Nationwide Two-Year Fixed Rate Isa 0.4% £1 minimum initial deposit
Barclays One-Year Fixed Rate Bond 0.45% £500 minimum initial deposit
Barclays One-Year Flexible Cash Isa 0.5% £1 minimum initial deposit. You can make three withdrawals during the term of the bond.
Nationwide Start to Save 1% £1 minimum initial deposit. Rate lasts for two years; can save up to £100 a month; entered into four prize draws where you could win £100; only available to those who live in England, Scotland and Wales.
TSB Save Well Limited Access Isa 0.3% £1 minimum initial deposit. Any withdrawals made during the account’s 12-month term result in interest being reduced to 0%.

It’s slim pickings when it comes to finding a fixed-term account on the high street, as there are only a handful around, and most are for shorter terms. TSB is the only high street provider that offers fixed-term accounts longer than two years – and its rate can be beaten by instant-access accounts elsewhere.

Opting for a high street brand could lose you a lot of interest – especially over the long term.

Say you had £10,000 to save. The highest rate you can get on the high street is with Barclays’s two-year fix at 0.6% AER (Nationwide’s Start to Save doesn’t allow one-off deposits). After a year you’d earn just over £60. If you saved with Bank of London & The Middle East’s two-year fix instead, you’d earn around £135 –  that’s £75 more.

Of the 45 different instant-access cash Isas and savings accounts offered by the big 10, well over half only pay 0.01% AER; all but five pay 0.2% or less – and they tend to come with tricky terms.

For instance, TSB’s instant-access account featured in the table pays more, but only for a year – and if you make any withdrawals you’ll end up with no interest at all.

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