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13 Jul 2019

Competition hots up among the best one-year savings and cash Isa accounts

Find out the best ways to grow your savings in just 12 months

Savers looking for an inflation-busting rate, without locking their money away for years, may be attracted to a 12-month fixed-term - especially as rates become increasingly competitive.

While the average rates for one-year savings and cash Isa accounts are currently just 1.41% and 1.32% respectively - the lowest they've been all year - providers have been vying to hit the top of the tables.

In the last two weeks alone, both Cynergy Bank and Paragon Bank launched market-leading 1-year cash Isas. Meanwhile, SmartSave launched a competitive one-year savings account paying 2.01% on 24 June, just to drop the rate two weeks later.

As competition rages on, now could be the perfect time to find a great deal. Which? reveals where to find the best savings rates for one-year fixes, plus other alternatives to grow your cash.

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What are the best rates for one-year savings?

According to Moneyfacts data, there are currently 115 one-year fixed-term savings accounts on the market, and 59 one-year fixed-term cash Isas.

The table below shows the five top-rate one-year fixed-term savings accounts.

AccountAERMinimum initial deposit
Bank of London & The Middle East one-year premier deposit account2.2% (EPR*)£1,000
Al Rayan Bank 12-month fixed-term deposit2.17% (EPR*)£1,000
Metro Bank one-year fixed-term savings account2%£500
Gatehouse Bank one-year fixed-term deposit2% (EPR*)£1,000
Smart Save one-year fixed-rate saver1.95%£10,000

*Expected Profit Rate. Source: Which? Money Compare. Correct 12 July 2019.

SmartSave, a small digital bank based in Wrexham, launched its one-year savings account on 24 June offering 2.01% AER - the third-highest rate in our table. However, just two weeks later on 8 July, the rate was reduced to 1.95% AER.

The cash Isa accounts from Cynergy Bank and Paragon Bank (in the table below) both increased their rates on 4 July, which saw them catapult to the top spots, but how long they'll stay there remains to be seen.

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

AccountAERMinimum initial deposit
Cynergy Bank one-year fixed-rate cash Isa1.61%£500
Paragon Bank one-year fixed-rate cash Isa1.6%£500
Al Rayan Bank 12-month fixed-term deposit cash Isa1.6% (EPR*)£1,000
Shawbrook Bank one-year fixed-rate cash Isa1.58%£1,000
Charter Savings Bank one-year fixed-rate cash Isa1.57%£5,000

*Expected Profit Rate. Source: Which? Money Compare. Correct 12 July 2019.

3 things to check before getting a new savings account

When it comes to choosing a new home for your savings, remember that it's not just about the interest rate. Here are a few things you should consider before making a decision:

  1. Can you afford the minimum initial deposit?Half of the top-rate accounts require you to deposit at least £1,000, but there are also much steeper £5,000 and £10,000 minimum initial deposits. Before you apply for a new account, make sure you can definitely afford the minimum deposit, and that you'll be able to leave that money locked up for a year.
  2. Can you open and manage the account in a way that suits you?The likes of Paragon Bank, Charter Savings Bank and OakNorth Bank don't have branch access, so may not be the best options if you prefer banking face-to-face.
  3. Are you protected by the FSCS?All UK banks should be registered with the Financial Services Compensation Scheme (FSCS), but keep in mind the compensation limits cover banking institutions rather than individual banks. For this reason, be wary of saving all of your cash in the same institution, particularly if you have more than the £85,000 threshold.

Cash Isa tax-free benefits

While the top-rate cash Isa accounts can all be beaten by their savings equivalents, they have the added benefit of being tax-free.

Interest you make from cash in a savings account is taxable, though whether you'll actually pay any tax may depend on your tax band.

Thanks to the personal savings allowance, basic-rate taxpayers can earn up to £1,000 savings interest in a tax year without paying any tax, while higher-rate taxpayers can earn up to £500. But those who pay additional-rate tax don't receive any allowance.

So, if you have a large savings pot, you're an additional-rate taxpayer, or you want to prevent paying tax in the future, the tax-free Isa wrapper may be worth accepting a slightly lower interest rate.

Other high interest savings options

There are alternative ways to earn high interest without locking your money up at all, but you might have to work harder to earn it and you won't be able to deposit as much. Here are a few ways to find a higher AER than any one-year fixes can offer.

Regular saver accounts

If you're set on making the most of your savings, a regular savings account can be a great idea, particularly if you have a smaller savings pot, or need the flexibility to access your money.

These accounts, however, have limits on how much you can deposit each month. Given you can only deposit a few hundred pounds at a time, you'll only earn the full 5% annual interest on a small amount of your savings.

The top regular savings accounts are:

  • First Direct Regular Saver Account: paying 5% AER, you need to hold a First Direct current account to apply. You can pay in between £25-£300 a month for 12 months. If you make any withdrawals during this time, the AER you'll receive for the rest of the one-year term will be 0.15% AER.
  • M&S Bank monthly saver: pays 5% AER. You must hold an M&S Bank current account, and can deposit £25-£250 a month for 12 months. If you close the account before one year, you'll receive the Everyday Savings Account variable rate, which is currently 0.2% AER.
  • HSBC regular saver - preferential rate: just for HSBC Premier or HSBC Advance customers, you can pay in £25-£250 a month, and you'll receive 5% AER. If you close your account before the 12-month term, the AER will drop to 0.2% AER.

High interest current accounts

Alternatively, there are a number of high interest current accounts out there, offering up to 5% AER. But, as with regular savings accounts, there are often a number of caveats you'll need to watch out for, including a minimum monthly deposit and direct debits.

While Lloyds Bank and Bank of Scotland are set to cut the rates on their current accounts, there are still plenty of other options to get a good deal. We reveal where to find them in our recent news story.