Summary 

• Recently, Bank of England reported that interest rates are continuously falling and it had left current base rate at just 0.1%.
• One in eight easy access saving accounts were paying only 0.01% interest at present.

The saving rates in the United Kingdom are falling tremendously and making things worse for savers. Recently, the Bank of England reported that interest rates were continuing to fall to a new low and it had left current base rate at just 0.1%. Providers are still sending out letters to customers telling them that returns are being hacked.

Inflation is forecasted to rise temporarily to 4% in the winter this year as Britain’s strong recovery from the pandemic accelerates at a rapid pace, which will lead to increase in the rises of prices in near-term and will eat away at the value of people’s savings. The bank predicts that there can be a slight increase in the rates next year in order to keep rising prices in check. 

This would put it at its highest rate for 10 years, and would be double the level the Bank is tasked with targeting. Following that, it said that the inflation would be at 3.3% in a year’s time, 2.1% in two years and falling back to 1.9% by 2024.

The central bank’s Monetary Policy Committee (MPC) reported that the economy may grow by 8% in 2021, which is up from a forecast in May of 7.25%, to regain its pre-pandemic level of activity by the end of this year, rather than spring 2022.

MPC also reported that the increase in inflation was likely to be temporary due to current surge in energy and imported goods began to decrease, falling prices growth in 2022 towards its 2% target.

All this is causing frustration among savers and tempting people to take extra risks and play into the hands of scammers. Gareth Shaw, the head of money at the consumer group Which?, said that customers looking around for higher saving rates is a “fraudster’s dream”. 

Kevin Mountford, co-founder of the savings provider Raisin UK, said that even the most competitive fixed interest rates on accounts are coming in at well below 2% at the moment. He also added that if someone offers you anything above this rate or anything that promises significantly above-average returns can be a fraud and be suspicious, even of something look right, make sure to investigate fully.

According to the latest Bank of England data, more than £200 billion has been put into cash savings accounts since the Covid-19 lockdowns in March 2020 till 30 June 2021.

According to Moneyfacts, one in eight easy access saving accounts were paying only 0.01% interest, that includes HSBC’s Flexible saver, Halifax’s Everyday Saver, Santander’s Everyday Saver and NatWest’s Instant Saver.

The National Savings and Investments used to offer index-linked saving certificates, which guaranteed that you investment would grow in spending power every year, even if there is any fluctuations in the inflation rate. But they have not been on sale since 2011. However, existing holders can renew them.  

Also read: Bank of England raises inflation forecast but leaves interest rates unchanged at 0.1%

Where to invest?

There are some accounts that can offer better rates than others, especially at present. Some of them are:

Regular saving accounts

Some regular saving accounts offer best interest rates, where investor put aside money each month and some of these accounts offer the chance to win cash prizes.

The Essex-based Saffron Building Society launched one of the best regular saving accounts that pay a fixed 1.75% interest rate. The small saver account can be opened online or through the building society’s app by any UK resident with any income.

Also read: Why you shouldn’t have too much gold in your portfolio

However, the account’s minimum balance requirement is £1 and the maximum is £600 only. Investors need to deposit between £1 and £50 per month, withdrawals are limited to just one month.

If the maximum monthly payment goes £50 with no withdrawals, the account holder will earn £5.69 in interest after a year. The idea is when the account matures in a year, anyone who struggles with money in the pandemic will have a more positive financial outlook. The saver can also access to financial wellbeing support such as advice, regular tips and webinars.

NatWest launched a saving competition to encourage first-time savers, 10 customers will win £1,000 each for opening an account and developing a regular savings habits. 

The participants/investors can open a digital regular saver account before the end of August 2021 and investor need to have a NatWest current account in order to apply, after that set up a standing order for between £1 and £50 and start making monthly payments. The winner will be chosen in December 2021. 

It does not mature in a year and allows withdrawals to be made without the need to close the account. The account holder will receive the interest every month, with the top rate of 3% paid to balances of up to £1,000 (the rate then falls to 0.01%). If the investor pays £50 each month with no withdrawals, they will earn £9.88 in interest after a year.

The ‘Start to Save’ is a Nationwide regular savings account that is designed to encourage people to build up a nest egg and gives them opportunity to win prizes of £100 each by saving regularly.

Also read: Does it make sense to invest only in dividend stocks?

In July, the draw had a prize pot of £275,600, with 2,756 savers winning cash. The next draw will be conducted on 21 October and then on 24 January 2022.

The fund in each draw equates to 1% of the total increase in the balance of all eligible accounts, so if more people invest in it, more prizes will be announced.

The ‘Start to Save’ saving account currently pays 1% interest and saver may access their money whenever needed as it is an online instance access account, but this may affect their entry into the draw.

There are many other regular saving accounts but with some restrictions such as in West Bromwich Building Society’s Adult Fixed Rate Regular Saver, which allows saving from £10 to £100 a month and pays 2% interest, which is fixed for a year. However, it can only be opened in one of the West Brom’s 36 branches.

Children’s account

Many children’s accounts offer higher interest rate than adult accounts. HSBS’s instance access MySaving account offers interest of 2.5% up to a maximum of £2,000 and 0.25% above that. The account can be opened for children aged between 7 and 17. But for accounts under 16, one need their parents or a guardian to manage their account. 

Also read: Can investments in IPO help you earn big?

The Santander’s 123 Mini current account for kids under 13 can be opened but has to be managed by an adult. This account pays up to 3% interest rate that is applied to the entire balance once it reaches £1,500-£2,000. However, for smaller sums the rate is either 1% or 2%.

Wales’s Principality building society offers a Learner Earner Account that can only be opened in branch or at an agency with an adult. It pays 2.35% interest on balances of between £1 and £20,000.  The maximum age for a child opening this account is 17. Savers can pay maximum £250 every month and can withdraw the money three times each calendar year. Once the savers have saved £20,000, it will not accept further deposits. 

The West Brom’s Children’s Fixed Rate Regular Saver account can only be opened at the branch, and it pays a fixed interest rate of 2.5%, which lets people save £10 to £75 each month.

The Junior cash Isas are the long-term, tax-free accounts that pays attractive interest rates too. People can put maximum £9,000 each tax year in this account on the behalf of a child under 18 and living in the UK. Loughborough Building Society has a Junior Cash Isa, which pays 2.5%, while Coventry Building Society’s pays 2.25%.

Fixed rate saving accounts

In the Fixed rate saving account, investors need to tie up money for a year or more. So, a person needs to keep a close eye on Moneyfacts’s table as these deals tend to come and go quite quickly. 

JN Bank was offering 1.7% interest rate, which was one of the highest rates on a five-year fixed rate bond and the minimum amount needed to open this account is £1,000, with no earning withdrawals allowed.

The one-year fixed rate bonds give a little over 1% interest, such as Tandem Bank is paying around 1.07% interest. Zopa, a peer-to-peer lending website, is providing a range of fixed-term saving accounts that pays 1.1% for a fixed one year, 1.43% for more than three years and 1.61% for five years, and investors can save around £1,000.

Government top-ups

The Lifetime Isa helps people to save either for a property or retirement and anyone between 18 and 39 can open it. An investor can put maximum £4,000 each year until the age 50 and further the government will add a 25% bonus to the savings, up to the maximum of £1,000 a year. Financial app Moneybox offers a cash lifetime Isa paying 0.85%, although this rate is boosted by a fixed one-year interest bonus of 0.6%.

Also read: Should you invest in FTSE 100 or FTSE 250 shares?

The Help-to-buy Isa is closed for new applications in 2019. However, with this account, the government will give savers up to £3,000 towards buying their first home. If an investor has one of these Isas but have not yet got it fully going, perhaps now is the time to start putting some money in.