Listen to this article
Investors are keeping a tighter grip on their credit cards and instead sheltering more money into savings accounts, according to statistics out last month from banking and investment associations. So it is worth taking a close look at the interest rates on offer from different providers.
Most of the best rates – once you have used up your cash allowance for a tax-free individual savings account – are for internet-based accounts.
But research by Sainsbury’s Bank found that many consumers still favour popping into their local bank branch for a more personal service. Sainsbury’s Bank estimates that there could be as much as £78bn in branch-based savings accounts, even though almost a third of these pay less than 3 per cent interest. It claims that there are 52 savings accounts on the market that pay less than 1 per cent interest.
Some of the high street banks seem to be the biggest culprits of unfavourable rates. NatWest offers just 1.29 per cent gross on its First Reserve savings account for deposits up to £4,999, while HSBC pays 1.24 per cent on funds up to £10,000 and Northern Rock’s instant access account pays just 0.7 per cent up to £25,000.
Nationwide offers an impressive 4.25 per cent gross on its FlexAccount current account but its Cashbuilder savings account pays only 1.2 per cent gross on funds up to £9,999.
Generally, if you have used up your Isa allowance and still have cash to invest, the best rates for instant access accounts are 4.5-4.8 per cent gross. These rates may also demand larger minimum deposits. According to Moneyfacts.co.uk, the comparison website, Anglo Irish Bank has a no-notice account that offers 4.8 per cent gross on funds over £500. Mansfield Building Society offers 4.75 per cent gross if you have at least £1,000 to invest.
Sainsbury and Tesco offer “branch-equivalent” savings accounts, which offer interest rates of up to around 4 per cent gross. These allow you to make deposits into your account at the checkout and pay in cheques either at the checkout or the customer service desk. So you may not benefit from the knowledge of an experienced bank cashier but at least you can pick up your groceries at the same time.
Get alerts on Trader's Diary when a new story is published