Interest-ing Times: New Best Savings Rates

There are over 1,500 options that deliver inflation-beating returns on your cash, in comparison to May 2023 where there were no deals at all that could beat the 8.7% CPI figure, according to research by MoneyFacts.

They found that over 45% of available savings accounts currently pay more than double the current 2.3% inflation rate.

Q: Do you have to lock your money away to get the best rates?

A: Traditonally you had to have what is called a notice account to get the highest savibngs rates, that meant you had to give 30, 60 or 90 days notice to withdraw any money. But right now (June 2024) it appears that you can access the best rates without having to give notice, as there are some very good instant access savings accounts.

Q: So, what are the best deals out there?

A: So here are some of the best rates

NatWest Digital Regular Saver Account 6.17% AER

Ulster Bank 5.2% AER

Oxbury Bank 5.02% AER

Kent Reliance 4.96% AER

Shawbrook Bank 4.7% AER

Your bank or building society will pay all savings interest due to you gross, that means without tax taken off.

Q: With interest rates expected to fall - how can I lock in higher rates for the long-term ?

A: You can look out for fixed rate saver accounts, which guarantee the rate for between 1-2 years, usually.

For instance, SmartSave has launched a new 2 Year Fixed Rate Saver this week, paying 4.96%. Savers will need to invest a minimum of £10,000. In common with many other fixed rate accounts, there is either no early access or high penalties for getting at yoiur money before the term is up. So invest only if you know you don't need the money for that time.

Shawbrook Bank has a 5 year fixed bond that is for 4.57% with a minimum deposit of £1,000.

Q: How bad can accounts be?

A: I suspect banks rely on us not doing very much to pay barely anything on some accounts. For instance, At NatWest, which has a great savings account, I have looked and looked and just can't find anyway where it tells you what they pay on their everyday banking account. The NatWest Teen Account pays just 2.7%. After 30 minutes on the NatWest site, I gacve up and found on the MoneyFacts site that NatWest pay 0% on their Premier Select Account, which just might be why they don't make it easy to find the information.

Q: How about ISA rates - are they better than bank accounts?

A: Well the main thing about cash ISAs is that they are free of tax. So the rate isn't the only thing to look at - you should examnine the anount you get after-tax.

The best ISA rates at the moment include:

Plum 5.17% Chip Cash ISA 5.1%

Charter Savings Bank 4.97%

Shawbrook 4.5%

• The big BUT... basic rate taxpayers can earn up to £1,000 in interest a year without paying any income tax.

This means most people can save into a normal savings account without tax consequences, so if you see savings products offering higher interest than ISAs, you may not need the cash ISA anyway.

• Higher rate taxpayers only get a £500 Personal Savings Allowance.

• Additional rate taxpayers don’t get any personal savings allowance, making cash ISAs more appealing for the higher paid saver.

Q: Anything I should think about for youungersavers?

A: There are cash ISAs for younger people.

Beverley BSJunior Cash ISA which pays 5.50% AER

Q: There's another less talked of solution known as Gilt Investing - what's that involve?

A: Investor demand for gilts has tripled compared to a year ago. That’s according to the latest data from Hargreaves Lansdown, which looked at first-quarter buying activity in 2023 versus 2024.

The interest (known as the coupon) paid on a gilt is taxed. But you can sell the gilt at a profit and the capital gains are tax-free. This is particularly attractive to investors now that the capital gains allowance has been halved to £3,000 from 6 April this year, down from £6,000 last tax year and £12,300 the year before.

To understand how to make use of the tax allowance and maximise your return, it's worth understanding how gilts work.

They are loans to the UK govenment, which offers an IOU (The Gilt) and a fixed interest payment. At the end of the loan period the government buys back the IOU for exactly what they sold it for (the amount they borrowed)

If the interest rate (the coupon) looks uncompettitiveafter a while, perhaps because interest rates are now better on bank accounts, the person holding the IOU will want to get rid of it. So they will sell it but only get less than they paid for it.

Now this can be a great opprtunity for the buyer - this is why....

A Gilt worth £100 is sold for £90. The new buyer gets a small interest rate, but at the end of the term, is guaranteed that the government will pay them £100 for the bond. They won't have made much interest, but they will have made a good profit by selling it for more than they bought it.

Because of the special tax status of investing in Gilts, the profit from the sales of the Gilt (the capital gain) is tax free.

Q: How do I buy gilts?

A: The easiest way to buy existing gilts and corporate bonds is either through a stockbroker or via an investment platform.

Remember this applies to UK govenment bonds and not corporate bonds.