With rising interest rates, finding a suitable place for your cash savings is increasingly important. There are many things to consider when looking for the best accounts, including the interest rate, accessibility of your cash, and protection limits.
The interest rate is one of the key factors that people focus on when looking for a savings account. With some accounts, you will have the option to receive interest annually or monthly and, usually, the interest rate offered is slightly lower with the monthly option due to the effects of compounding. As such, to maximise your savings interest, it can be beneficial to opt for annual interest, although the monthly alternative can be useful for those that prefer a more regular income stream.
Currently, a competitive easy-access savings account offers around 3.00% gross Annual Equivalent Rate (AER). This means that on a balance of £10,000, you could receive interest of £300 gross (before tax) over the year.
When chasing higher interest rates, it is important to be mindful of the access terms of the account. Accounts can be easy-access, whereby you can make withdrawals without penalty at any time, or they can be fixed, with more limitations.
A fixed rate account means that the interest rate is guaranteed for the duration of the term, however you are unable to access your cash over the period. These tend to range from 1 year to 5 years. However, there are other options, such as 30-day notice accounts, and those that limit the number of withdrawals, for instance triple-access accounts.
The Financial Services Compensation Scheme (FSCS) means that if a bank or building society fails and can’t pay back your money, you will be entitled to compensation. The bank or building society must be authorised by the Prudential Regulation Authority to qualify. You can check whether an institution is authorised using the Financial Services Register.
The FSCS will cover up to £85,000 per person, per authorised institution, which means up to £170,000 for joint accounts. However, some banking firms have more than one brand, which means that they share the same banking licence. In this case, the limit applies to the total value of all accounts within the same group, rather than on the holdings with each individual institution.
Other Things to Consider
As well as the above, you should also be mindful of the following:
• Is there a minimum initial deposit required to open the account?
• Are there any ongoing minimum balance requirements?
• Do any fees apply?
• Is the interest rate tiered based on the value of the account?
• Can the account be opened and managed in branch, by telephone or is it online-only?
• Does the institution have a good customer service record?
The rates being offered by banks and building societies can change at short notice and it is best to check the market to see the most competitive accounts available if you’re looking to switch. One way to compare account rates is to use a comparison tool such as MoneySuperMarket. This allows you to filter between different access terms to find a savings account that is right for you. Make sure to set your preference to show all providers, rather than just those that can be opened via MoneySuperMarket.
It is also important to keep in mind that changing between accounts regularly in pursuit of the highest rates can be a bit of a headache administratively. Sometimes, the additional interest in monetary terms may only be minimal, and not worth the effort of moving funds around.
If you would like some guidance on whether your money is working in the best way for you, please contact a member of the team.