Cash is King. Or so they used to say. Of course today it’s more like some distant Baron 5,600th in line to the throne. Interest rates have remained low for a long time now, and in 2020 the interest rate was cut to 0.1% during the Covid-19 crisis. Awful times for savers. Good times for borrowers.
Let’s be clear – cash is not risky, you know what you’re getting. We should all ideally have at least 3 months’ salary in a cash emergency fund AND for shorter-term saving it makes sense. But for savers the returns are really dire and may not beat inflation, so your savings account may stay the same, but it will buy less stuff. The most generous easy-access cash savings accounts are provided by RCI Bank UK, alongside Marcus and Saga (via or in partnership with Goldman Sachs). These currently pay an interest rate of 0.4%. To put the current rates into context, Marcus by Goldman Sachs was paying a significantly higher 1.45% interest rate for the same account, as recently as November 2019.
There are other, potentially more lucrative routes to easy-access savings,with Chip paying a 1.25% bonus on savings up to £2,000 (increasing to £10,000 for a £1.50 per month fee).
Most of the interest on your cash should be free from tax. You have a personal savings allowance of £1000 (for a basic rate taxpayer, £500 for a higher rate taxpayer), meaning you can hold £100,000 in an account paying 1% without ever paying tax, even if you don’t hold it in an ISA wrapper. These days, many savings accounts will pay better rates than cash ISAs.
If you just pile up cash in your current account, there is only likely to be one winner. And that’s not you and it’s not us – it’s the bank. Do shop around for the best cash deals. As we speak, for example, Virgin Money’s current account pays 2.02% on the first £1,000 in your account and Nationwide's FlexDirect account pays 2% on upto £1,500 for the first 12 months; so you can make your cash work harder than a limp 0.0001%!
If you’re after a fixed term of a year, Ahli United Bank offer 0.65% with a minimum deposit of £1,000, whilst OakNorth Bank offer 0.58%, with minimum deposits starting from £1.
Rates correct as at March 2021