Max Out Your Savings!
With savings rates on the rise, we round up the best places to stash your cash.
Although interest rates remained at 4.75% this month, a lot of people believe that the Bank of England will raise them to 5% in the next few months. And although this isn't great news for those with a variable mortgage, it does mean that savers can start earning a decent rate on their cash.
Savings rates have been quite pitiful for a long time now, with even the best rates below 5%AER, but they have been creeping up slowly over the past few months. This has perhaps been fuelled by the introduction of overseas banks to the UK market - Indian bank ICICI launched its HiSAVE account and is currently paying 5.15%AER, and brand new Icelandic contender Icesave is currently paying a market leading 5.2%AER (for deposits over £250) to savers with its Easy Access account.
So where should you stash your hard earned cash to make the most of these rising interest rates? Well essentially it all depends on three things:
- How much tax you pay
- How much you wish to save
- How much notice you are willing to give to get at your cash
We each have a personal allowance of £5,035 this year - whatever you earn above this amount is liable to be taxed (those aged 65-74 can earn £7,280, and those aged 75 and over can earn £7,420). If you're a taxpayer, your savings will be automatically taxed at the lower rate (20%) (higher-rate taxpayers pay a further 20% via their tax return).
Luckily, there are ways that everyone can save tax-free and perhaps the easiest of these is the mini-cash ISA. This allows us to save up to £3,000 each year, free of tax into a mini-cash ISA savings account. And although there are rules regarding their use, they are widely regarded as a great way to save.
Of course, all accounts are different and generally speaking you'll get a better interest rate if you're willing to put up with not being able to get at your cash instantly.
So here are the current, top, new mini-cash ISAs for instant access accounts needing £1+, and notice accounts needing £1000+:
Best Buy Instant Access Mini-cash ISAs (£1+)
Provider | Account | Deposit | Interest | Interest | Accessed/ |
|---|---|---|---|---|---|
Kent Reliance BS | Direct Mini-cash ISA | £1-£24k | 5.21% | Yearly | Post |
National Counties BS | Cash mini-ISA | £1-£33k | 5.01% | Yearly | Post/Branch/ |
Kent Reliance BS | Mini-cash ISA | £1-£24k | 5.01% | Yearly | Post/Branch |
Leek United BS | Mini-cash ISA | £1-£33k | 5.00% | Yearly | Branch |
Bank of Scotland | Halifax Isa | £1-£33k | 5.00% | Yearly | Phone/Internet |
Best Buy Notice Mini-cash ISAs (£1,000+)
Provider | Account | Deposit | Interest | Notice | Accessed/ |
|---|---|---|---|---|---|
Northern Rock | One Year | £500-£24k | 5.35% | Earlier access | Branch/Post |
Northern Rock | Four Year | £500-£24k | 5.35% | Earlier access | Branch/Post |
Teachers BS | Mini-cash | £250-£3k | 5.30% | Earlier access | Post Rate includes 0.5% |
National Savings | Direct ISA | £1k-£3k | 5.30% | Instant access | Phone/Internet Rate guaranteed to |
Yorkshire BS | Fixed rate | £100-£3k | 5.26% | Earlier access | Branch |
Source: Moneyfacts
And anyone aged 50 or over can benefit from the Newcastle 50+ ISA, from Newcastle BS. It is currently offering 5.35%AER for deposits of £1-£33k, with its rate guaranteed to be no lower than 0.5% below Base Rate until 17.11.07.
So although most of the good ISA rates are only available via notice accounts to those investing £500 or more, the Direct ISA account from National Savings and Investments does offer a fantastic 5.3% with no notice period. However, it's worth noting that you cannot transfer existing ISAs into this account (except for NS&I ISAs).
So what about non-taxpayers, or those with a bit more to save? For those looking to save in a general savings account, here are the top instant access accounts for those saving £1+, and £5,000+:
Best Buy Instant Access Savings Accounts (£1+)
Provider | Account | Deposit | Interest | Interest | Access/ |
|---|---|---|---|---|---|
Birmingham Midshires | Internet Easy | £1-£5m | 5.20% | Anniversary | Internet Rate includes 0.65% |
HiSAVE | £1+ | 5.15% | Monthly | Internet | |
Citibank | Flexible Saver | £1-£1m | 5.04% | Monthly | Branch/Post/ |
Direct Telephone | £1-£2m | 5.00% | Anniversary | Phone | |
Direct Internet | £1-£2m | 5.00% | Anniversary | Internet Rate guaranteed to be Initial deposit must |
Best Buy Instant Access Savings Accounts (£5,000+)
Provider | Account | Deposit | Interest | Interest | Access/ |
|---|---|---|---|---|---|
Direct Saver | £5k-£100k | 5.38% | Monthly | Phone/Internet No interest paid in month | |
Manchester BS | Premier Plus | £2.5-£75k | 5.26% | Yearly | Branch/ Post 4 w/d per year, upon 5th |
Direct | £5k-£250k | 5.25% | Anniversary | Phone Rate guaranteed for 1 year. |
The top savings account of the moment is therefore the Birmingham Midshires Internet account paying 5.2%AER on deposits of £1 or more. However, for those with a bit more to save the Direct Saver account from Alliance & Leicester offers a market leading 5.38%AER.
If you haven't checked the rate your savings are earning, it's certainly worth doing. And if you haven't used your ISA allowance yet, consider making the most of it. A higher rate taxpayer with £3,000 in a savings account paying 4%AER would earn just £90 in a year. Shift that to the NS&I Direct ISA and you could earn £159!
So don't let your cash wallow in a poor-paying account. Work out which account suits your needs best and move that money to make it work harder, today.
Search and apply for a top savings account, right here at the Fool in our Savings Centre.
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