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Best UK savings accounts with above-inflation rates

With the cost of living crisis, British households are constantly looking for ways to boost their cash flow, and savings accounts can help.

After years of low interest rates, high-yield savings accounts are enjoying a resurgence, despite the Bank of England cutting rates from a 16-year high of 5.25% to 5%. While homeowners face higher mortgages, there is also a silver lining to the higher cost of borrowing, and consumers can now find UK savings accounts offering higher interest rates than the rate of inflation.

According to the British Office for Statistics (ONS), the inflation rate was 2.2 percent in July, the first increase since the beginning of the year. In June and May it was 2 percent.

Savers should shop around for the best deals and check what interest rate they are entitled to – as they could still be stuck with a product that is not beating inflation. Providers may also start to cut interest rates if interest rates fall, so consumers should check whether their money is well spent for higher returns.

Alice Haine, financial analyst at Bestinvest, advises savers to act quickly to secure the best deals. “With the best savings accounts still offering over 5%, now is the time to lock in those rates before they start to fall,” she said.

For those who keep their money in easily accessible accounts, switching to a fixed-rate account could be a smart move to preserve returns.

The most important factor to consider when choosing a savings account is the difference between an instant deposit account and a fixed deposit account.

Read more: Bank of England cuts key interest rates from 16-year high

With easy-to-access accounts, you have access to your money when you need it. Fixed deposits, as the name suggests, are accounts where you cannot access your money during the term of the contract. They usually offer better interest rates, but you must agree not to touch your savings for a long period of time, usually between one and five years.

The best fixed rate account currently offers 5.25% and is available with Union Bank of India in the UK. They are offering 5.25% for one year. This savings account can be opened with £1,000, with the maximum bond balance being £500,000.

This fixed deposit account requires a minimum balance of £10,000, which must be locked for three months. You can invest up to £1,000,000. Withdrawals are not permitted during the term of the contract and you can only open this account online.

A 5.20% offer is available on Mizrahi Tefahot Bank's Flagstone platform. This fixed deposit account requires a minimum deposit of £10,000, which must be locked for six months. You can invest up to £1,000,000. Withdrawals are not permitted during the offer period and you can only open this account online.

ICICI Bank UK offers a 6-month savings account with 5.11% interest that requires just £1,000 to open. There is no maximum limit and interest is paid on maturity.

Online banks typically offer higher interest rates than traditional branches, which translates into better returns and provides you with a more efficient way to save and reach your financial goals.

If you prefer to choose a well-known name, branch banks offer slightly cheaper deals, but these are still above the inflation rate.

Barclays (BARC.L) offers the highest interest rate among branch banks. Its one-year fixed-rate savings account pays 4.65%. The requirements are not too strict, with a minimum balance of £500.

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Lloyds (LLOY.L) offers a fixed rate savings product at 4.25% for one year. However, the minimum deposit is £3,000 and you must have or open a current account with Lloyds or another savings account to be eligible. For new customers, the interest rate is 4.15%.

How do fixed-interest savings accounts work?

Unlike free-floating savings accounts, where interest rates can vary, fixed-rate accounts give you a set interest rate for the period you choose, whether it's six months or one, two, three or even five years. These are the most common offers, but some deals go up to 10 years or more.

You must leave your original deposit for a set period of time without making any withdrawals. If you touch your money, you will lose all interest.

What are the best easily accessible savings accounts?

Easy-access savings accounts allow you to withdraw your money without notice. With this easy availability comes lower interest rates, but they are a good option for those who think they may need their money quickly.

Read more: When do you have to pay taxes on your savings

Note that the interest rates on these accounts are variable, meaning they can rise or fall. You will be notified in advance of any change.

Cahoot offers the best deal for easy-access accounts at 4.85%. You only need £1 to open the account and there is no maximum limit.

The Family BS pays 4.82% with an easy-to-access account that pays interest annually. The account can be opened online with a minimum deposit of £100.

Secure Bank Trust pays 4.81% and the account can be opened with just £1. Interest is paid annually.

There are even higher-interest, easy-to-access accounts, but they are not for new customers. Santander's (BNC.L) Edge Saver, for example, offers 6% but is only for current account holders.

If you can't decide whether you would rather put your money aside and not touch it for a long time or access it at any time, then you should think about a cancellation savings account.

With cancellation savings accounts, you must cancel your account with your savings provider before you can withdraw your money.

These are ideal for those who know when they might need their cash but don't want to be tempted to have to access it at any time.

You must give the bank or building society a certain amount of time before you can withdraw your money – usually between 30 and 120 days.

Prosper offers a 365-day deal with 5.50% interest, the best deal on the market right now. You need a minimum of £20,000 to open the account and can deposit up to £250,000. The same bank offers a 185-day notice account with 5.34% interest and the same requirements.

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Investec (INVP.L) offers a 90-day notice account that pays 5.25% after three months. You need between £5,000 and £250,000 to apply.

The interest rate on termination accounts is variable, which means it can rise or fall over time.

Those who want to make the most of their cash savings can earn returns of over 10% on traditional savings accounts.

With most savings accounts, you have to deposit money every month and receive interest annually. It is not uncommon for the offer to be reserved for existing customers only.

Virgin Money has launched a market-leading offer of 10.38% on a standard savings account. You only need £1 to open the account and can deposit up to £250 per month. There is no minimum monthly deposit amount and you do not have to pay into the account every calendar month.

This is a fixed rate account with a maturity date of 31 July 2025 and you must have a current account with Virgin Money opened on or after 4 December 2019. Or you may have originally opened your current account with Clydesdale Bank or Yorkshire Bank, for example as a Signature Current Account.

Principality offers 8% on a six-month savings account. You open an account and deposit up to £200 each month. Interest is calculated daily on the money in the account and paid out six months after opening.

For existing customers, First Direct offers 7% for a year and allows a maximum monthly deposit of £300. You cannot miss any months, a minimum of £25 must be deposited into the account each month, you cannot make any withdrawals without penalty and if you close the account before the 12 months are up, the interest rate drops to 2%.

The Co-op Bank is offering a 7% deal to existing customers. With a one-year fixed rate, you can save up to £250 a month and skip months without penalty fees.

For all offers listed above, you can simply open an account to access the offer.

All the deals mentioned here are covered by the Financial Services Compensation Scheme, so you are protected up to £85,000, or double that if it's a joint account.

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