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11 Feb 2022

Where can you get the highest interest rate on your savings?

Find out whether savings providers are passing on the base rate rise

The Bank of England base rate increased to 0.5% last week, a 0.25 percentage point rise that should, in theory, be passed on through better savings and cash Isa rates - but is that the case?

We last saw the base rate rise in December, but when we analysed savings and cash Isa interest rates a month later we found that the increase hadn't reached savers.

Here, Which? shares analysis of what's going on in the savings market, and reveals where you can find the top savings and cash Isa rates.

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Are savings rates increasing?

Looking at average interest rates, the amount you can earn from fixed-term accounts is on the up.

The graph below shows how average interest rates have fared since March 2021, using data from Moneyfacts.

As the graph shows, average rates for instant-access savings accounts and cash Isas have remained broadly the same for the past year.

Things look more promising for fixed-term accounts - particularly long-term accounts with terms of 18 months or more. Average long-term fixed-term cash Isa rates have jumped the most, seeing a 0.07% increase between January and February 2022, with the average now at 1.04% AER.

This is a significant increase considering average rates for the same type of accounts grew by just 0.05% between November 2021 and January 2022. However, the increased interest might have more to do with the upcoming 'Isa season' than the base rate increase; if providers are just trying to attract Isa savers before April then we could see rates fall back later on this year.

Average long-term savings account rates increased to 1.22% AER in February 2022, up from 1.16% in January - this is the highest average rate since April 2020, but average rates are still well under pre-pandemic levels of 1.37% AER seen in March 2020.

When it comes to one-year fixed-term rates, both savings accounts and cash Isas have increased by a pretty underwhelming 0.02% AER in the past month. However, as rates stalled at the end of 2021, some upward movement is better than none, and we might see more providers pass on the base rate change if competition heats up.

Which accounts offer the top savings rates?

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

Account typeAccountAERTerms
Five-year fixed-term savings accountJN Bank Five-Year Fixed-Term Savings Account2.12%£1,000 minimum initial deposit
Five-year fixed-term cash IsaUnited Bank UK Five-Year Fixed-Rate Cash Isa1.76%£2,000 minimum initial deposit
Four-year fixed-term savings accountJN Bank Four-Year Fixed-Term Savings Account1.95%£1,000 minimum initial deposit
Four-year fixed-term cash IsaUnited Bank UK Four-Year Fixed-Rate Cash Isa1.51%£2,000 minimum initial deposit
Three-year fixed-term savings accountAl Rayan Bank 36-Month Fixed-Term Deposit1.86% (EPR*)£5,000 minimum initial deposit
Three-year fixed-term cash IsaUnited Bank UK Three-Year Fixed-Rate Cash Isa1.41%£2,000 minimum initial deposit
Two-year fixed-term savings accountAl Rayan Bank 24-Month Fixed-Term Deposit1.66% (EPR*)£5,000 minimum initial deposit

Source Moneyfacts. Correct as of 10 February 2022, but rates are subject to change. *The accounts from Al Rayan Bank are Sharia-compliant, and so offer an expected profit rate (EPR) as opposed to interest (AER).

As the table shows, none of the top-rate accounts are available to those with less than £1,000 to save - in fact, many require a far higher minimum initial deposit to secure the account.

If you don't have this much to put away, there will still be competitive savings options for you - some of which will can be opened with just £1.

Make sure you're happy with the terms of a new account before you sign up, as you could be caught out. For instance, Aldermore's Double Access Account currently pays the highest interest rate for an instant-access account - but only if you make two or fewer deposits per year. Any more, and the rate will be slashed to 0.1% AER - so if you know you're likely to make a lot of withdrawals this isn't the best account for you.

NS&I increases rates on some accounts

On 10 February, NS&I announced rate rises for its Direct Saver and Income Bonds accounts, now offering 0.5% AER - up from 0.35% AER.

NS&I says the rate increases will bring the products in line with the rest of the savings sector - but, noticeably, this doesn't involve passing on the full 0.25 percentage point increase from the base rate.

However, these accounts last saw rate increases in December 2021 - after the last base rate increase. The Direct Saver and Income Bonds rates saw a 0.2 percentage point increase, which was a little over the 0.15 percentage point base rate rise.

How does the base rate affect savings?

The base rate determines the rate of interest the Bank of England charges when it lends money to commercial banks.

The higher the base rate, the more banks have to pay to borrow from the Bank of England. When the base rate is high, it encourages banks to look to other means to fund their borrowing.

This most commonly includes increasing the interest rates for borrowers repaying mortgages, and upping interest rates on savings accounts to encourage more people to deposit their money; paying interest on savings is usually cheaper for a bank than paying loan interest.