The interest rate paid by savings accounts has been growing at a remarkable pace since the beginning of the monetary tightening cycle and reached 3.55% for the highest-paying instant-access account available today, according to Moneyfacts.
Recently, this rise hasn’t kept up with the Bank of England’s base rate, currently set at 4.25%, but savers can find higher rates in fixed-term accounts.
Consensus views are now predicting that the bank rate will peak at 4.75%, not too far from their current levels. This gives life to the idea that high savings rates won't last long, according to Myron Jobson, senior personal finance analyst at interactive investor (ii).
“There's a sense that central banks all over the world, including the Bank of England, might have to end their rate hikes cycle sooner than expected, not least because of the issues with Silicon Valley Bank and Credit Suisse, which have exposed the soft underbelly of the banking system”, he said.
This has cooled off the savings market a little, while signs of resurging optimism have emerged in the equity markets.
The latest Calastone report showed that money stored as cash flowed back to equity funds in March, to the tune of £960m of inflows, “reversing a run of investor pessimism”.
But for some, fears of a global recession still loom.
Seema Shah, chief global strategist at Principal Asset Management: “While current economic conditions are supportive of above-trend growth, leading indicators are signalling elevated risks of recession later this year.”
“The New York Fed’s own recession model suggests that the probability of recession within the next 12 months is the highest since the early 1980s.”
Putting your money in a bank might still be an attractive option after all, especially for the short term, according to Peter Sleep, senior portfolio manager at 7IM.
“If you might want to pay for your wedding next year, or something similar, you should consider putting that cash on deposit at your bank so there is no risk to your big day,” he said.
Jobson went further, saying that there might not be a better time for savers looking for the best deals, especially for those who are looking to get the best fixed-rate deals.
“Some of these deals have been pulled from the market in recent weeks and that might be the trend in the near future as interest rates start to stabilise and Bank rate forecasts come back a little bit from the current highs,” he said.
Below, we explore the top-paying savings accounts where you can save your money risk-free. All figures are based on a £25,000 lump sum.
If you are looking for flexible cash withdrawals and reasonable interest rates, the highest-paying easy-access account is Chip Instant Access by ClearBank, which offers a variable 3.55% paid monthly and can be opened via mobile, according to Moneyfacts.
It is followed by the Family Building Society Online Saver and Kent Reliance Easy Access Account, at 3.40% and 3.37%, respectively.
Notice accounts offer better rates, with Allica Bank and Market Harborough Building Society both offering 4% if you are happy to withdraw your cash on a 180-day notice. The former is paid on anniversary, the latter monthly and can also be opened in branch.
Halving the notice period to 90 days will get you a 3.71% interest, paid monthly by Investec Bank plc.
The best rates, however, are for those willing to lock their money for some months or years. At 4.68%, the best fixed-term account as of today is Al Rayan Bank’s three-year deposit.
This bank also gives savers the best rate for two-year deposits, currently at 4.62%, and for 18-month deposits, at 4.57%. All three accounts pay quarterly and can be opened online or via the telephone.
However, as a sharia-compliant bank, it does not pay interest, but rather expected profits from ethical investments made on the behalf of savers, meaning there is a level of risk above traditional savings accounts.
If savers do not believe they will find better rates for the next five years and are happy to part from their money for that long, they can consider Tandem Bank’s five-year fixed saver, which can be opened online with the provider or on the Raisin UK platform.
Paying 4.6%, other providers offering the same return include Monument Bank and United Trust Bank.
Jobson, however, warned that "investments still remain the better choice for those with a long-term time horizon of at least five years, where one can take solace in the fact that historically, investments have yielded better returns than savings".
Locking money away for one year will secure you 4.54% with both OakNorth Bank and Oxbury Bank, the former paid on maturity and the latter on the anniversary date. In second position are SmartSave and Al Rayan Bank.