With savings rates topping 3% and the ISA deadline approaching, savers are faced with a difficult decision.
It’s now possible to get a savings account paying a guaranteed interest rate of 3.05% a year.
That’s higher than any other account on the market (excluding regular saver and current accounts) as well as inflation, currently 1.9%.
Whilst you’re unlikely to have heard of Agri Bank, based in Malta, you apply through Raisin, an established UK savings marketplace that often offers sharp rates.
Crucially, this is a genuine savings account, not an investment product and the equivalent of €100,000 of your savings are protected by the European equivalent of the Financial Services Compensation Scheme.
So, what’s the catch?
Firstly, you’ll need to put at least £10,000 in the account.
Secondly, you’ll need to lock your money away for five years, until 2024.
Compare savings accounts, Cash ISAs and peer-to-peer investments (capital at risk)
We’ve seen it all before
Long-term loveMONEY readers will notice a ‘déjà vu’ in this article: this time last year we warned against taking up Halifax’s then market-leading five-year fixed rate ISA.
We warned that sticking with Halifax’s rate of 2.25% was a ‘gamble’ and that “the fact Halifax is offering this rate suggests they are banking on rates to rise”.
Savings rates have risen since – albeit not that much.
Agri Bank’s 3.05% rate is a welcome anomaly: other fixed rate bonds max out at 2.75%; the top interest rate for a five-year ISA is an uninspiring 2.30%.
The biggest rises in savings rates have been in one and two-year fixed-term savings accounts. Lock your money away for just a year and you could get a rate of 2.2%; hold out for two years and you could get a rate of 2.45%.
You get some flexibility, both for rainy days and the possibility that better savings rates could be available next year. But these accounts’ rates are still nowhere near 3.05%.
The current account that pays a 5% interest rate
Protected against inflation
Over five years, if you really want to make money from your savings, you’re probably best off investing them.
Many people, however, are satisfied if their savings keep up with inflation, and Agri Bank’s five-year account certainly does that.
Not only does it comfortably beat inflation – the rate is 3.05%, compared to CPI at 1.9% - it’s also higher than the Bank of England’s long-term inflation target of 2%.
Governor Mark Carney is not omnipotent, of course: a financial crisis could drive inflation far above 3% and shrink your Agri Bank savings, although that’s unlikely.
You can read our full guide to investing here
Do you need an ISA?
Throwing a spanner in the works is the fact that Agri Bank doesn’t offer an ISA.
Whilst the Personal Savings Allowance allows you to earn up to £1,000 in interest tax-free each year, Higher Rate taxpayers get just £500 and Additional Rate taxpayers no allowance at all.
Basic Rate taxpayers can save up to £29,000 (approx.) with the Agri Bank account without paying tax, and Higher Rate taxpayers £14,500, assuming they’re not earning taxable interest elsewhere.
You’ll need to put any extra savings over those five years straight into an ISA, or get taxed on the interest.
Which ISA is best: Cash, Stocks & Shares, Innovative Finance, Lifetime, Help to Buy or Junior?
Long-term thinking
Market-leading savings accounts tend to come and go very quickly, sometimes in a matter of days.
That’s unfortunate because locking your money away for five years isn’t a decision to be taken lightly.
If you can wait five years, haven’t already used up your Personal Savings Allowance, have £10,000 spare but don’t want to take the risk of investing, then Agri Bank’s 3.05% interest rate appears to give you a good chance of ‘future-proofing’ your savings.
But if you answered ‘no’ to any of the above questions, look elsewhere.