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Highest number of savings accounts in 18 months – where can you earn the most interest?

The number of savings accounts on the market has risen consistently for the past six months

Highest number of savings accounts in 18 months – where can you earn the most interest?

Savers can now choose from 1,639 savings accounts and cash Isas on the market – the highest number since the Covid-19 pandemic began in March 2020.

The number of savings products has risen for the sixth consecutive month, according to data from Moneyfacts.

Here, Which? looks into whether the rise in accounts means you can find better interest rates, and which accounts offer the best returns.

The best savings rates for your cash

The table below shows the top-rate cash Isas and savings account, by order of term.

Account type Account AER Terms
Five-year fixed-term savings account Gatehouse Bank Five-Year Fixed-Term Green Saver 2.05% (EPR*) £1,000 minimum initial deposit.
Five-year fixed-term cash Isa United Bank UK Five-Year Fixed-Term Cash Isa 1.51% £2,000 minimum initial deposit.
Four-year fixed-term savings account Gatehouse Bank Four-Year Fixed-Term Green Saver 1.92% (EPR*) £1,000 minimum initial deposit.
Four-year fixed-term cash Isa United Bank UK Four-Year Fixed-Term Cash Isa 1.36% £2,000 minimum initial deposit.
Three-year fixed-term savings account JN Bank Three-Year Fixed-Term Savings Account 1.81% £1,000 minimum initial deposit.
Three-year fixed-term cash Isa United Bank UK Three-Year Fixed-Term Cash Isa 1.21% £2,000 minimum initial deposit.
Two-year fixed-term savings account Al Rayan Bank 24-Month Fixed-Term Deposit 1.76% (EPR*) £5,000 minimum initial deposit.
Two-year fixed-term cash Isa Castle Trust Bank Two-Year Fixed-Term Cash Isa 1.1% £1,000 minimum initial deposit.
One-year fixed-term savings account Gatehouse Bank One-Year Fixed-Term Green Saver 1.51% (EPR*) £1,000 minimum initial deposit.
One-year fixed-term cash Isa Castle Trust Bank One-Year Fixed-Term Cash Isa 0.9% £1,000 minimum initial deposit.
Instant-access savings account Coventry Building Society Four Access Saver 0.65% £1 minimum initial deposit. Four penalty-free withdrawals per year; any more are subject to a 50-day interest charge.
Instant-access cash Isa Cynergy Bank Online Isa 0.65% £1 minimum initial deposit.

*Expected profit rate. Source: Moneyfacts. Rates correct on 21 October 2021, but are subject to change.

Note that none of these accounts equal or beat the current Consumer Prices Index (CPI) measure of inflation, which measured 3.1% in September.

This means that your savings will lose value over time, as the interest can’t keep up with the rising prices of items or services.

So, if you’re thinking of committing to a long-term fixed-rate account, you’ll have to weigh up the fact that while you’ll be earning a higher interest rate, you won’t be able to take advantage of further interest rate rises before your account matures.

The accounts from Al Rayan Bank and Gatehouse Bank are Sharia-compliant products, and therefore offer an expected profit rate (EPR), rather than an annual equivalent rate (AER). This means that the advertised rate is not guaranteed – although we’ve never heard of an instance in the UK where an Islamic bank has paid less than its advertised rate.

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What’s happening to the savings market?

As most savers will already know, the savings market took a huge downturn as a result of the coronavirus pandemic.

Average rates had been in general decline since mid-2019, but when the first national lockdown happened in March 2020 the drop in rates accelerated. Average rates for instant-access cash Isas, as well as long-term fixed-rate savings accounts and cash Isas, fell by at least 0.2% between March and May 2020. This can be seen in the graph below.

It took until May 2021 for all average rates to reach rock bottom, and now there seems to be a period of recovery – but the savings market still isn’t at pre-pandemic levels.

In terms of the number of accounts available, top rates and average rates, Moneyfacts data shows savings products are still behind where they were in October 2019. The table below shows the overall number of accounts, and how average and top-rate one-year fixed-term savings accounts have faired over the past two years.

October 2019 October 2020 October 2021
Number of cash Isas and savings accounts 1,853 1,531 1,639
Top-rate one-year fixed-term savings account AER 2.07% 1.26% 1.51%
Average one-year fixed-term savings account rate AER 1.29% 0.68% 0.76%

As the table shows, the top rates tend to fluctuate in-line with the number of accounts on the market, so it’s a promising sign for savers that the current increased levels of competition will likely continue to push up rates.

However, the fact that average rates are proportionally far lower now than they were in October 2019 suggests that not all providers are interested in keeping pace with the best rates. It’s not clear whether that’s down to market uncertainty, or the fact that they’re not being forced to be more competitive as savers aren’t moving their cash elsewhere.

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How many accounts still pay nothing?

Of the 1,083 variable-rate and fixed-term cash Isas and savings accounts currently on the market, 55 pay 0.01% or 0% AER.

With CPI inflation measuring over 3% for two months in a row, and predicted to go higher, having your savings earning such a low rate of interest will end up eroding your money’s value.

The effect of inflation on your savings works over time. Say you put £1,000 in a savings account that only pays 0.01% AER in September 2020, after a year your savings will have earned 10p in interest. However, the price of goods and services included in the imaginary ‘shopping basket’ tracked by CPI inflation increased by 3.1% in that time.

While your £1,000 may have been able to buy 50 things in the shopping basket in September 2020, by September 2021 the prices may have all outpaced the growth of your savings, so you may not be able to afford to buy the same amount anymore. Therefore, the value of your savings has been reduced.

Other things to consider when choosing an account

While an account’s interest rate is important, it’s not the only factor you should consider when choosing a new home for your savings.

There’s no point going for a rate that’s offered with terms you won’t be able to stick to; an instant-access account that only allows a certain amount of withdrawals per year will be no good if you have to dip in more regularly than that.

It’s also worth checking to see whether you’ll be able to open and manage the account in the way you’d like. Some providers require everything to be carried out online, whereas others will offer telephone and in-branch services.

You might also want to think about how sustainable your savings provider is. Recent Which? research found there was a big difference in how much sustainability information some providers shared publicly.

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