Higher interest rates have been a burden for homeowners and businesses over the past couple of years – but they have also been a real boost for people with savings.
Even while inflation has remained between 2.6 and 3.8 per cent over the past year, savings accounts have offered an even higher rate of interest to ensure both that your money grows, but also importantly, grows at a faster pace than prices are rising.
Inflation erodes the buying power of cash, but as long as savers have been happy to move their cash, a raft of banks, building societies and finance apps have offered consistently above 4 per cent - and now, as expectations grow that the Bank of England may raise the base rate, an even higher benchmark has been set.
Yes, the 5 per cent interest savings account has made a return.
It’s certainly not everywhere, with Moneyfacts data showing that on 30 July, the average easy access savings rate was just 2.56 per cent.
And the biggest names are still offering a woefully low rate for the most part; in fact, research by savings app Spring showed that high street banks were still offering a dismal average of 0.96 per cent interest last month, on restriction-free easy access accounts.
But for savers willing to move their cash, options are there to earn £50 a year on each £1,000 in a savings pot – but it’s important to know that not all accounts are created equally, and each has their own drawbacks and benefits to consider beyond the headline rate.
Revolut, for example, is offering 5 per cent - but that rate only lasts until 4 December of this year. Still a good short-term boost, of course, but it’s also only available to new customers and if you open an account before 4 August. From early December, that rate returns to 2.9 per cent if you are on a standard plan, or higher if you pay for premium tiers.
Lemfi, a financial services company originally set up to help immigrants move or send money, is also offering 5 per cent for six months, which then lowers to 3.04 per cent. Cash with them is held by ClearBank, an FSCS-protected and regulated bank.
And Cahoot, which is owned by Santander, have a Sunny Day Saver which pays 5 per cent too - theirs lasts for a full 12 months, but is only for balances up to £3,000. No interest is paid above that threshold, making it ideal for savers with smaller tallies to begin with.
Santander are one of the banks offering even higher - 6 per cent in their Edge Saver - but that, and others, are for clients who have paid-for current accounts, which can similarly hold restrictions on amounts or number of withdrawals allowed.
The milestone interest rate hasn’t hit the Cash ISA market just yet, with the best offering around the 4.6 per cent mark so far, but fixed term accounts are firmly in the 5 per cent territory too - for the first time in two years.
Investec launched their three-year saver this week, guaranteeing 5 per cent annually for balances of between £5,000 and £250,000 - and paying out that interest each year, so you don’t end up with a three-year lump at once, which could generate a tax bill. However, the trade-off with fixed-term bonds is that you lock your money away for the whole period.
Atom Bank has also hit 5 per cent, though that’s for an even longer five-year term; great if you want certainty over earnings, though for periods above three years, most finance experts suggest considering whether you should invest a portion of your money as that can generate higher returns than savings over longer periods.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: “For the first time since 2024, the market-leading fixed bond now pays a 5 per cent return. For someone with £20,000 to save, fixing at 5 per cent for three years could mean securing around £3,000 in interest, compared with around £2,240 earned based on the current average new savings rate at 3.60 per cent.
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“Around £750 extra is not a small amount and teaches a valuable lesson that savers don’t need to have more money to get a better return - instead they may just need to move money they already have. However, fixed bonds are designed for those who are comfortable locking their money away for the full term, so savers should ensure they won’t need to access their cash before committing.”
Ms Eastell also served a reminder that competitive deals “can be short-lived, so those considering a switch would be wise to act sooner rather than later.”
It’s worth noting, of course, you can earn even higher interest, for much smaller monthly amounts, in regular saver accounts.
Which account type and which exact one you pick depends on your needs in terms of timelines, accessing cash, putting more in along the way...and the interest rate. And for most people, there should be room for more than one type of savings account in their wider plan.
The 5 per cent account is very much back, so wherever you choose to park your money, make sure it’s earning great interest well above the rate of inflation.
