SAVERS aiming to earn up to 5% on their deposits will need to act swiftly, as banks and building societies are withdrawing the best deals.
For the first time since January, interest rates on fixed-term and easy-access deposits have fallen across the board.
According to MoneyFactsCompare.com, the average rate for longer-term fixed bonds, lasting over 550 days, has dropped to its lowest point since April 2023, now standing at 3.99%.
The average one-year fixed bond rate has also fallen this month to 4.30%, down from 4.43% in August.
Additionally, the average easy access rate has decreased month-on-month to 3.07%, while the average notice rate has declined to 4.23%, offering 1.16% more than the average easy access rate.
Rachel Springall, finance expert at MoneyFacts, said: “Savings rates fell across both variable and fixed sectors in August, which is the first time all rates dropped since the start of 2024.
“The downward path was perhaps an inevitable direction after the Bank of England base rate was cut, but it can take a few weeks for providers to make a move in response.
“One area of the savings market to take a hit has been easy access accounts, seeing the biggest month-on-month drop since April 2024.
“Those savers who have not reviewed their savings accounts would be wise to do so, to ensure they are still paying a competitive return.”
There are several different savings accounts, but fixed bonds still offer the most bang for your buck if you are looking to save money over a long period of time.
Sarah Coles, head of personal finance at Hargreaves Lansdown, added: “There’s a big difference between the average rates around and some of the best on the market.
“If you walk away from the high street giants and try the online banks and cash savings platforms, you can earn far more than 4% across the board – and you can still get 5% on a one-year bond.”
We’ve outlined the best savings rates by account type below to help you maximise your returns.
SAVING ACCOUNT TYPES
THERE are four types of savings accounts fixed, notice, easy access, and regular savers.
Separately, there are ISAs or individual savings accounts which allow individuals to save up to £20,000 a year tax-free.
But we’ve rounded up the main types of conventional savings accounts below.
FIXED-RATE
A fixed-rate savings account or fixed-rate bond offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term.
This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account.
Some providers give the option to withdraw, but it comes with a hefty fee.
NOTICE
Notice accounts offer slightly lower rates in exchange for more flexibility when accessing your cash.
These accounts don’t lock your cash away for as long as a typical fixed bond account.
You’ll need to give advance notice to your bank – up to 180 days in some cases – before you can make a withdrawal or you’ll lose the interest.
EASY-ACCESS
An easy-access account does what it says on the tin and usually allows unlimited cash withdrawals.
These accounts tend to offer lower returns, but they are a good option if you want the freedom to move your money without being charged a penalty fee.
REGULAR SAVER
These accounts pay some of the best returns as long as you pay in a set amount each month.
You’ll usually need to hold a current account with providers to access the best rates.
However, if you have a lot of money to save, these accounts often come with monthly deposit limits.
What’s on offer?
The best fixed rate currently offered is Mizrahi Tefahot Bank’s one year fixed bond, which pays 5% (but requires a minimum investment of £1,000).
Atom Bank’s one year fixed bond offers 4.85% back to those with less money to save.
This only requires a minimum deposit of £50.
The best notice accounts are actually offering slightly higher rates than the best fixed term bonds.
These also come with more flexibility when accessing your cash.
Investec Bank’s 90 day notice account offers savers 5.35% back with a minimum £5,000 deposit.
OakNorth Bank’s 95 day notice account offers 5.12% back to those with less money to save.
This only requires a minimum deposit of £1.
If you’re looking for a savings account without withdrawal limitations, then you’ll want to opt for an easy-access saver.
These do what they say on the tin and usually allow for unlimited cash withdrawals.
The best easy-access savings account available is from Ulster Bank, which pays 5.2% – but you need to pay a minimum of £5,000 and be a current account customer.
Cahoot’s Sunny Day Saver (Issue 2), offering a 5% interest rate, allows savers unlimited withdrawals and requires just a £1 minimum deposit to open the account.
If you want to build a habit of saving a set amount of money each month, a regular savings account could pay dividends.
Principality Building Society’s 6 Month Regular Saver offers 8% interest on savings.
It allows customers to save between £1 and £200 a month.
Save in the maximum, and you’ll earn 27.53 in interest.
What’s next for savings rates?
Savings rates usually rise and fall with the Bank of England‘s base rate.
This was cut for the first time in four years from 5.25% to 5% earlier this month.
And markets are pricing in one further rate cut in 2024.
If forecasts are correct, the base rate could fall to 4.75% by the end of 2024.
That’s bad news for savers, whose rates typically fall when the Bank’s rate is cut.
However, a host of savings accounts allow you to lock your money away on the promise you’re paid a fixed interest rate for a defined period.
Fixed bonds, can be a useful bet to help ride out future cuts to the base rate.
FINDING THE BEST SAVINGS RATES
WITH your current savings rates in mind, don’t waste time looking at individual banking sites to compare rates – it’ll take you an eternity.
Research price comparison websites such as MoneyFactsCompare and MoneySupermarket.
These will help you save you time and show you the best rates available.
They also let you tailor your searches to an account type that suits you.
As a benchmark, you’ll want to consider any account that currently pays more interest than the current level of inflation – 2%.
It’s always wise to have some money stashed inside an easy-access savings account to ensure you have quick access to cash to deal with any emergencies like a boiler repair, for example.
If you’re saving for a long-term goal, then consider locking some of your savings inside a fixed bond, as these usually come with the highest savings rates.
