West Brom launches two market-leading five-year savings accounts

Two new savings accounts have arrived on the market paying a rate of more than 3%. But is there a catch?

The savings market appears to be taking a turn for the better, with West Brom Building Society launching two market-leading savings accounts paying 3.15%

The first is a tax-free ISA and the second a regular fixed-rate savings account. However, there is a possible problem - you'll have to lock your cash up for a long time.

Two new accounts

West Brom now offers two of the highest-paying savings accounts on the market.

Both can be opened with £1,000 and operated in branch, by phone, online or by post. With the ISA, savers can also transfer in money from existing ISAs if they want to.

There is one savings account offering a higher rate, which comes from Skipton at 3.50%. The major downfall with this one is you’ll need to lock away your money for at least seven years. By contrast, the West Brom accounts only require you to lock your cash up for 'just' five years.

Secure Trust has a five-year fixed-rate savings account paying 3.11%, while Leeds Building Society pays a slightly lower rate of 3.05%.

Here I’ve picked out the five best savings accounts in the five-year bond range.

If you'll need access to your cash sooner within the five-year period, choose a one, two, three or four-year account instead

Fixed-rate ISA

The advantage of opening up an ISA is that the returns you make will be tax free. With the West Brom deal you can put in anything between £1,000 and the yearly Cash ISA limit which is £5,760 for 2013/14.

The pattern for fixed-rate ISAs is quite similar to that of fixed-rate savings bonds, with the only decent rates requiring you to give up access to your money for a lengthy period.

The West Brom account takes the top spot followed by one from Leeds BS at 3.05%. Here are the top five rates on offer from Cash ISAs.

An instant-access account pays less but will give you access to your money whenever you need it without penalty

How to choose the best savings account

The savings market is pretty grim at the moment. The market-leading rates are nothing compared to what was on offer this time a year ago. This is largely due to the Government’s Funding for Lending Scheme (FLS) which has given providers cheap access to money, leaving them with no need to build up customer deposits.

The fact most of the highest-paying savings accounts will lock you in for at least five years is another example of how bad things are.

The problem is if you sign up to one of these ‘market-leading’ accounts now, chances are rates will improve in the next five years and you’ll be stuck on a rock bottom rate until the bond matures. Therefore if you're not prepared to lock your money up for that long, go for a bond with a shorter length.

However, it’s not all doom and gloom. Things are getting better and the fact smaller providers, such as West Brom and Leeds BS, are launching products is a positive sign. There are also a lot of alternatives to the high street on offer, such as peer-to-peer lenders that are worth considering if you’re looking for a steady income from your savings.

Can you get a better rate on your cash with a current account?

More on savings:

Why some current accounts are better than savings accounts

The best instant-access savings rates

Why the high street banks are the worst place for your money

Proof that saving can make us happier

The best fixed-rate savings accounts