Best Savings Accounts and Alternatives to Savings

Strategies for High Inflation, Rising Interest Rates, and Maximising Savings with Better Accounts

On 11th May, the Bank of England (BoE)  continued its streak of raising the base rate, marking the 12th consecutive increase. The latest hike of 0.25% brought the base rate to 4.5%, the highest it has been since 2008. As a result of these successive rises, we are now witnessing improved rates on savings accounts.

These rate hikes are part of the BoE's strategy to steer inflation back to its target of 2%.The inflation rate year over year is 8.658% (compared to 10.057% for the previous month).  

Unfortunately, these developments bring unfavourable news for borrowers, as mortgage rates remain elevated. However, when banks pass on the interest rate hike to savers, it proves beneficial for customers by increasing their returns.

 What banks offer the best savings rates in the UK?

Savings account interest rates in the UK can vary depending on the bank or building society you choose. In general, attractive savings rates are often offered by online banks, as they have lower overhead costs and can therefore afford to offer higher interest rates to their customers.   Furthermore, different types of savings accounts offer different rates.  Most experts recommend the following savings account categories:

Easy access savings accounts

Easy to withdraw money quickly and easily but tend to be lower interest rate.

·  Hanley Economic BS currently offers by far the highest interest rate for easy-access accounts at 4.25% (min £1,000) 

·  Shawbrook Easy access account pays 3.75% (min £1,000), which also offers unlimited withdrawals.

Notice savings

These accounts require you to give notice before you can withdraw your cash.  

·   Cynergy Bank currently pays 4.31% for 120-day notice accounts, or for a shorter notice period, it also offers a slightly lower 4.26% for 95 days' notice (both min£500)

 Short-term and Long-term fixes: must lock cash away.  

 It's important to keep in mind that interest rates can change frequently, so it's a good idea to compare rates from multiple banks and building societies to find the best deal for your savings. Additionally, some savings accounts may have restrictions, such as requiring a minimum deposit or limiting the number of withdrawals you can make each month, so make sure to read the terms and conditions carefully before opening an account.  

Checking websites such as Moneyfacts, Bankrate, or Money Saving Expert, which provide regularly updated information on the best savings rates currently available in the UK, can be helpful. 

Investors have not earned much in recent years on money held in savings accounts due to historically low interest rates.  Although savings account rates have recovered somewhat after many years of low rates, savings are particularly affected by the current high inflation.  

How does inflation affect your savings?  

Reduced purchasing power, and loss of value over time are directly related to inflation and when prices rise, individuals may feel the need to save more to maintain their standard of living.

The investor is losing money if the inflation rate exceeds the interest earned on a savings account.  This means that when inflation is running high, investors’ savings lose “real value” in the “real world”, as essentially their money buys less, reducing their purchasing power.  For instance, if inflation runs at around 3% over the next five years, what you could buy for £1,000 today would cost you £1,159.27 in 2026.  If you have £1,000 in a savings account today with 0.5% interest, you would only earn £25.31 interest over that same five years – meaning that you effectively would lose £133.96. 

How can you protect your money against rising inflation? 

Inflation is a persistent increase in the prices of goods and services over time. It can erode the purchasing power of your money and negatively impact your savings.  It is important to mitigate the impact of inflation rates on your savings.  Various strategies can help you counterbalance the effects of inflation and protect your money’s value.  

Please note easyMoney is not able to give financial advice and investors should take advice from suitably qualified individual financial advisor before investing.

Here are some ways investors may be able to protect their money against rising inflation:

Invest in assets that tend to appreciate in value: Historically, stocks, real estate, and gold have tended to appreciate in value over the long term, and they can help protect your money against inflation.

 Keep an eye on interest rates

As inflation rises, central banks may raise interest rates to try to control it. Higher interest rates can provide a higher return on investments.  Interest rates are set by the Bank of England (BoE) to help steady the economy and control inflation. 2022 has seen interest rates rise, as the BoE tries to bring inflation back down to a target of 2%.  However, although this may have a positive effect on your savings – as higher rates tend to filter through the economy – it also means the cost of borrowing on credit cards, loans or mortgages may go up. It is a delicate balancing act to keep the economy growing and inflation under control. For savers, the benefits of any interest rate increases will probably be marginal. When inflation is taken into account, it may take a long time for rising interest rates to offer any real “bang for your buck” on savings accounts.

Reduce debt

Inflation can make debts more expensive to repay, so it is important to pay off high-interest debts as soon as possible.

Invest to give your money a greater potential to grow

Investing your money over the medium to long term may give you a better chance of beating inflation. That’s because investments, such as funds, shares, bonds and other assets could give your money greater potential to increase in value over time.

Diversify your investments

When you decide to invest your money, it is fundamental to spread your investments across different asset classes and industries to minimise risk.

Review and adjust your portfolio regularly

As economic conditions change; it is important to review your portfolio and adjust your investments accordingly.

Overall, it is best to be proactive and take steps to protect your money against inflation. By diversifying your investments, investing in assets that appreciate in value, and monitoring economic conditions, you can minimise the impact of inflation on your savings.

One alternative to savings accounts that offers better rates and serves to diversify your investments is to consider investing money in a peer-to-peer (P2P) lending platform, such as easyMoney.  easyMoney is a UK-based provider of short-term loans backed by UK real estate, but it should be noted that Peer-to-peer platforms do not offer the protection of an FSCS guarantee. easyMoney currently offers investors two ways to invest in property loans and earn up to 9.5 % either via P2P Regular Account or via an Innovative Finance ISA (IFISA).  For more information, visit easyMoney.

Peer-to-peer lending platforms allow individuals to lend and borrow money directly from each other, bypassing traditional financial institutions. Here are some advantages of investing in P2P lending platforms:

Higher potential: P2P lending platforms typically offer potential for higher returns than traditional savings accounts or bonds.  Potential for target rate on the easyMoney platform investors can earn up to 9.5 % p.a.

Diversification: Some P2P lending platforms allow you to diversify your investments across multiple loans to minimise the effect if there was a default. By spreading investments overtime a range of borrowers and loan types, the impact of any single default can be reduced. 

Low minimum investment: Some P2P lending platforms allow investors to start with a small amount of money, sometimes only £100, making it accessible to a wider range of investors.

However, it's important to note that P2P lending is not without risks. There is a risk of default, and investors may not be able to sell their loans if they need to cash out early. Additionally, P2P lending platforms do not benefit from the FSCS compensation scheme, so investors may lose some or all their investment if the platform goes bankrupt. It's important to do your research and understand the risks before investing in a P2P lending platform.

easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated i n property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.

easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.


Written by The easyMoney Team

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