UK households are often looking for ways to make their money go further amid the cost of living crisis, and savings accounts could help you improve your finances this year.
The Bank of England‘s (BoE) decision to cut interest rates to 3.75% from 4% in December brought relief to mortgage holders, but wasn’t exactly great news for savers as it influences the rates set by banks and building societies on their products. Threadneedle Street is widely expected to leave interest rates unchanged next week.
Inflation remains well above target, with the UK’s consumer prices index (CPI) rising for the first time in five months to 3.4% in December, from 3.2% in November. But the good news is that most offers stated here offer above inflation returns.
Experts urge savers to shop around for the best deals and review their accounts regularly, as many may still be sitting on products that fail to beat inflation.
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “For savers, falling inflation puts the spotlight firmly on getting the best possible return. As expectations grow that interest rates will start to come down, savings rates are likely to follow.
“That makes now an important moment to shop around, while competition between providers is still delivering strong returns. Fixed rate accounts in particular can offer peace of mind by locking in today’s rates before they fall.
“The key is not to settle for the first rate you see. Look carefully at terms, timeframes and flexibility, and think about whether certainty or access matters most to you. There are still competitive deals available, but being proactive can make a real difference to how hard your savings work over the year ahead.”
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Alice Haine, personal finance expert at Bestinvest, said: “An uptick in inflation is unlikely to be welcomed by savers. While higher inflation may slow the pace at which top savings rates disappear – assuming interest rate cuts are pushed back – the tradeoff is that rising prices erode the real value of returns.
“Savings rates have already fallen back notably following six BoE rate cuts since August 2024 – making it harder for savers to generate meaningful real returns.
“Those hoping to preserve returns on cash held in bank and building society savings would be wise to seek out the the most competitive deals sooner rather than later. Further rate cuts expected this year will apply additional downwards pressure on savings rates, however the UK’s rising personal tax burden is proving even more corrosive.
“Chancellor Rachel Reeve’s decision to extend the freeze on income tax thresholds until 2031, alongside the two-percentage-point hike in savings income tax for all taxpayers – and a frozen personal savings allowance – means a growing proportion of savers will see their interest swallowed up by the taxman, especially if they move up a tax band.
“For diligent savers putting money aside for a rainy day, this means real returns net of tax may only be marginally positive even on the most competitive deals. This is why a tax-efficient savings strategy is imperative.”
Victor Trokoudes, founder and CEO at smart money app Plum, said: “Savers will need to prepare for a rate cut to their savings and shop around to make sure they’re getting the best rates, as variable products will likely see an interest rate cut following the base rate decision.”
“Against a challenging economic background, people are looking for competitive interest rates for their cash savings with tax-free returns,” he said.
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“It’s paramount that customers consider a range of options to secure better long-term returns for their money, especially if interest rates return to a downward trajectory, like a stocks and shares ISA.”
In her budget, Reeves announced changes to the tax payable on savings income. From 2027-28, the basic rate on savings will be increased by two percentage points to 22%, the higher rate will be increased by two percentage points to 42% and the additional rate will be increased by two percentage points to 47%. This will take effect from 6 April 2027.
Until recently, savers could earn a market-leading 5% for three months, but the best offer is now 4.40% from OakNorth via the Prosper platform. Interest is paid at maturity, and a minimum investment of £10,000 is required to open the account.
Santander (BNC.L) via the same Prosper platform pays 4.3% on a three-month term. Interest is paid at maturity, and £10,000 is needed to open the account.
Shawbrook via Raisin platform has a 4.29% deal for 12 months with which requires £1,000 to open.
Online banks typically offer higher rates than traditional bricks-and-mortar branches, which translate into better returns, giving you a more efficient way to save and reach financial goals.
If you prefer to go with a familiar name, the high-street lenders have slightly lower offers, but are still above inflation.
Tesco (TSCO.L) Bank offers a one-year fixed-rate savings account that pays 4% annually, with the minimum balance required being £2,000. However, you can invest up to £5m.
NatWest (NWG.L) has a fixed-term savings account offering 3.5% for one year. The minimum deposit is just £1 and interest will be paid on the first business day of every month and on the maturity date.
Unlike easy-access products, where interest rates can vary, fixed-rate accounts earn a set rate of interest for the period you choose, whether that’s six months or several years. Those are the most common deals, but some offers go up to 10 years and over.
You must leave your initial deposit for a fixed period without making withdrawals. If you touch your money, you forfeit any interest.
Easy-access savings accounts let you withdraw your money without notice. With that ease of access come lower interest rates, but they are a good option for those who think they might need their money in a hurry.
Be aware that rates on these accounts are variable, which means they can go up or down. You will be notified of any change ahead of time.
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Chase (JPM) has a 4.5% offer for 12 months that you can access with just £1.
Mansfield BS has a 4.25% offer which you can open from £1 and save up to £400,000. If you were to put £1,000 in this account, your balance after 12 months would be £1,042.50.
Manchester BS has a 4.15% deal which you can access with only £1 and invest up to £1,000,000. Interest is paid annually.
There are even higher-paying easy-access accounts, but they are not for new customers. Santander’s (BNC.L) Edge Saver, for instance, offers 6%, but is only available to current account holders.
Can’t decide on whether you want to put your money away and not touch it for a long time or keep it accessible at all times? Maybe you should consider a notice savings account.
Notice savings accounts require you to give notice to your savings provider before you can withdraw your funds.
These are ideal for those who know when they might need their cash but don’t want to face the temptation of dipping into it at any time.
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You need to give the bank or building society a set advance warning before you can withdraw your money. It’s usually between 30 and 120 days, though this can be longer.
OakNorth Bank via Prosper has a 4.5% deal that requires £10,000 to access. The notice period is 120 days and it is only available to new customers.
Earl Shilton BS pays 4.50% on a 180-day period notice, with the minimum deposit set at £5,000.
Oxbury offers 4.38% on a 180-day deal that can be accessed with £1,000.
Interest rates with notice accounts are variable, which means they could go up or down over time.
For those looking to make the most of their cash savings, regular savings accounts can offer returns of up to 7.5%.
Most regular savings accounts require you to put money away each month with interest paid yearly. It is not uncommon for the offer to be available only to current customers.
Principality offers 7.5% in a six-month regular saver account. You open an account and pay in up to £200 each month. Interest is calculated on the money in the account each day and paid six months after opening.
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Zopa pays 7.1% on monthly deposits of up to £300. Account holders also receive 2% AER interest on all balances and 2% cashback on bill payments and there is no minimum monthly deposit.
The Co-op offers 7% on its regular savings account, allowing deposits of up to £250 a month.
First Direct pays the same 7% but you can save £300 every month.
Every deal mentioned here is covered by the Financial Services Compensation Scheme, so you are protected up to £120,000 or double that if it’s a joint account.
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