By clicking a retailer link you consent to third-party cookies that track your onward journey. This enables W? to receive an affiliate commission if you make a purchase, which supports our mission to be the UK's consumer champion.

26 Sept 2024

Savings rates tumble: how to get more than 5% interest on your money

Top-rate accounts often come with restrictions on withdrawals

Matthew JenkinSenior writer

Savings rates are falling across the board, but you can still find deals that offer more than 5% interest.

The bad news, however, is that the most attractive accounts often come with strings attached, and they also don't tend to stick around for long.

Here, Which? explains what's happening to the savings market, and reveals the hoops you might need to jump through to secure the best rate.

Compare savings accounts

Find the right savings account for you using the service provided by Experian Ltd

Compare and choose

Savings rates are falling fast

Savings rates on both fixed and variable accounts fell during August. This is the first time all rates have dropped since the start of the year.

This follows last month's decision by the Bank of England to cut the base rate from 5.25% to 5%. A drop in the base rate is usually bad news for savers, as banks often respond by reducing the interest paid on savings accounts.

Providers have been slamming the brakes on fixed-rate accounts in particular over the past 12 months. Since September last year, the average one-year fix has dropped from 5.34% to 4.43%, and the average long-term fix (lasting more than a year) has dropped from 5.12% to just 3.99%, according to Moneyfacts data.

While this month's average instant-access rate of 3.07% AER is higher than the 2.95% recorded last September, it's still down on August's average of 3.14%. Worse rates could be yet to come if the base rate falls again before the end of this year.

Where can you still get 5% on your savings?

Our analysis of Moneyfacts data found just 3% of fixed and variable rate accounts currently on the market offer interest of at least 5%, compared to 44% of accounts this time last year.

There is currently only one 12-month fixed bond that pays at least 5% AER, and there are no long-term fixed bonds or restriction-free instant-access accounts offering interest that high.

However, savvy savers who are flexible about the terms of the account will have more luck. Here are our top tips to help you hunt down a 5% deal:

1. Look beyond the high street

Despite repeated warnings from MPs and the Financial Conduct Authority, the biggest banks continue to short-change savers with paltry rates. Our analysis of rates between January and June found popular high street providers consistently failing to offer competitive deals for savers.

The best deals are offered by smaller challenger and Islamic banks, so it's always worth shopping around. Our guide on the best savings accounts is updated weekly with the latest top rates. It also shows you the best savings providers based on customer experiences and expert Which? analysis.

Find out more: is your bank short-changing you?

2. Be aware of access rules

Some top-rate products may limit the number of withdrawals you can make. In exchange, providers usually reward savers with a higher rate of interest.

Our analysis of Moneyfacts data found half of the current top 10 instant-access accounts limit the number of withdrawals you can make or the balance you must maintain before imposing penalties.

Of these accounts, Chip's Easy Access Saver is the only one that offers 5% AER, but it allows just three withdrawals a year without loss of interest.

3. Weigh up a notice account

Notice savings accounts work in a different way to instant-access deals. Instead of being able to withdraw your money when it suits you, you'll have to tell your provider in advance that you want to take any cash out.

Our analysis of Moneyfacts data revealed nine out of 10 top-rate variable deals are notice accounts, all of which offer rates of 5% AER or more.

However, these accounts are unlikely to suit you if you may need to get at your savings unexpectedly. If you do make an emergency withdrawal from a notice savings account, you're likely to lose some interest.

4. Fix for less than a year

Before the savings boom of the past two years, the general rule of thumb was that the longer you fixed for, the better the returns. That trend has now been turned on its head, and shorter-term bonds now promise the best interest.

Seven out of 10 market-leading fixed-term bonds are for less than a year and offer at least 5% AER.

This is because providers are currently adjusting rates based on what might happen to the base rate in the future. Banks don't want to be stuck paying 5% interest over the next few years if it looks like the base rate is going to drop to less than that well before the account matures.

Find out more: is now the time to fix your savings?

5. Look into accounts for existing customers

Some of the top savings accounts on the market are often reserved for existing customers of the bank or building society.

That usually means having a current account, but you may also be eligible if you have another financial product, such as a mortgage or investment account.

Ulster Bank's Loyalty Saver, for example, offers the best restriction-free instant-access account, with a rate of 5.2% AER. However, it's only available to people who already have an Ulster Bank current account.