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 account is from Marcus by Goldman Sachs, with an interest rate of 1.45%. Then there's Coventry Building Society with 1.46%.
However, with some companies paying dividends of around 3-6%, don’t assume cash is your only option for an income. Consider the stock market too. 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, Nationwide's FlexDirect account pays 5% for the first 12 months, TSB Classic Plus pays 3% if you pay in £500 a month, and both Bank of Scotland Vantage and Lloyds Bank Club Lloyds pay 2%. So you can make your cash work harder than a limp 0.0001%!
If you’re after a fixed term of a year, Al Rayan Bank is offering 1.86% with a minimum deposit of £1,000. If you can keep your mitts off for 3 years that rises to 2.32%. Other good one-year fixed accounts include Gatehouse Bank with 1.85% and Family Building Society with 1.79%.
Rates correct as at November 2019