Our Pick Of The Best High Interest Savings Accounts

Interest rates on easy access savings accounts are expressed as an Annual Equivalent Rate (AER). This includes the interest and any bonuses on savings account across a 12-month period (as well as any potential charges). The idea of an AER is that it allows easy comparison between accounts.

The AER advertised is gross which means before any tax is deducted. However, the vast majority of people do not pay tax on savings interest.

Interest on easy access savings accounts is often paid annually, either on a date of your choosing, or the date the account was opened.

Fixed rate bonds can be opened from the age of seven – although a parent or guardian will need to sign the application for a child. Some providers require a minimum age of 16 or 18.

Usually, fixed rate bonds can be opened online. Other options include in a branch, or by post or phone.

When opening a fixed rate bond, savers must deposit the entire amount of money they want to save in one transaction or within a short period of time. Once a fixed rate bond is up and running, additional money can’t be added.

To open an easy access account, you usually need to be 16 or over and a UK resident.  They can be opened online, via an app, in a branch or by telephone.

The majority of savings accounts allow you to open an account jointly with someone else, including many of our best buys (although not all do). You can’t have a joint ISA due to their tax-free status, and some fixed rate bonds can only be opened by one person.

You’ll get double the FSCS limit on a joint savings account as you get the £85,000 protection per person per banking institution.

If your business has surplus cash it’s unlikely to be earning any interest in a business current account. There are savings account options available to businesses, depending on how the business is set up.

If you’re a sole trader or freelancer for example, you might be able to save your business cash in a personal savings account. These are likely to pay the highest rates. Partnerships and limited companies will need to use specialist business savings accounts.

Each fixed rate bond will have a minimum and maximum investment. These figures are a lot higher than on other types of savings account.

Typically, opening one requires savers to make a minimum deposit of at least £1,000. Some bonds have a much higher minimum, of up to £25,000.

Maximum deposits vary between bonds, with many allowing savers to deposit up to £1 million.

Easy access savings accounts can often be opened with as little as £1.

Unless you have a savings account that pays a higher interest rate than inflation you’re effectively losing money. That’s because inflation is eroding the value of your cash. 

When inflation is very high, your spending power is reduced and your money doesn’t buy as much. That’s why it’s important to seek out the highest possible interest rates to counter the losses caused by inflation.

The main disadvantage to fixed rate bonds is that any savings held in them can’t be accessed before the end of the term. Fixed rate bonds also mean taking a gamble on interest rates, as a better offer may become available part-way through the term if interest rates rise.

Easy access accounts can mean bypassing some of the maximum potential returns available but for many savers, this is offset by their flexibility.

Cash in a fixed rate bond can’t generally be accessed until the end of the term.

Savers are usually contacted by their provider a few weeks before their bond is due to mature to discuss options. These include withdrawing the money, or investing it in another fixed rate bond.

Some providers allow early withdrawals from fixed rate bonds, but this will come with a penalty. Rules about early withdrawals vary from provider to provider.

For example, HSBC allows savers to withdraw all their money and close the product early if the initial deposit was less than £50,000. However, closing the bond incurs a penalty of 90 days’ interest.

For balances of £50,000 and above, the product cannot be closed until the end of the fixed rate period.

The Financial Services Compensation Scheme (FSCS) protects money up to £85,000 per person per institution, or £170,000 for joint accounts whether this is a fixed rate bond or easy access account.

While this will be adequate for the vast majority of savers, bear in mind that many fixed rate bonds allow deposits of up to £1 million which would exceed this protection.

Sharia savings accounts follow Islamic banking principles so they cannot pay interest. Instead these accounts pay what’s termed an ‘expected profit rate’.

With an expected profit rate, the return on the money is not guaranteed. But, to date, no Islamic bank operating in the UK has failed to pay its expected profit rate.

As with other Islamic finance, Sharia accounts won’t ever invest in industry sectors such as alcohol and gambling.

Opening a fixed rate bond could be a good option for savers who:

• have adequate savings in an easy access savings account for emergencies
• can invest a lump sum of at least £1,000
• won’t need access to their money for the length of the term of the bond.

Technically, yes, savings interest is taxed. But everyone has both an annual Personal Savings Allowance (PSA) and an ISA allowance which means the vast majority of savers (an estimated 95%) do not pay any tax on the savings interest they earn.

The government introduced the Personal Savings Allowance in 2016. The PSA allows savers to earn an amount of interest each year without paying tax.

For basic rate taxpayers (20%), the tax-free threshold is £1,000 in interest per annum. For higher rate taxpayers (40%), the interest limit is £500 per annum.

Additional rate taxpayers (45%) don’t get a Personal Savings Allowance which means all interest they earn from savings is potentially liable for tax.

Gross interest is the annual interest paid on savings before tax. Net interest is after tax.

For savers who don’t pay tax on their savings due to using the PSA and ISA limits, gross and net interest will be the same.