Best UK savings accounts offering above inflation rates

Pedro Goncalves
Updated

UK households are always looking for ways to make their money go further amid the cost of living crisis and savings accounts can help.

After years of low rates, high-yield savings accounts are having a moment even as the Bank of England cut interest rates from a 16-year high of 5.25% to 5%. While homeowners face higher mortgages, there is a silver lining in higher borrowing costs and consumers can now find UK savings accounts offering higher than inflation rates.

The UK rate of inflation came in at 2.2% in July, the first increase of the year, according to figures from the Office for National Statistics (ONS). It was at 2% in June and May.

Savers should shop around to find the best deals and check what rate they are on — as they could still be sitting on a product that does not beat inflation. Providers might also start to lower rates as interest rates fall, so consumers need to check if their money is well placed for higher returns.

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

For those with money in easy-access accounts, switching to a fixed-rate account could be a prudent move to preserve returns.

The main factor you should be aware of when choosing a savings account is the difference between easy-access and fixed-term.

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

Easy-access accounts allow you to access your money when you need it. Fixed-term, as the name implies, are accounts where you can’t access your cash for the duration of the deal. They usually offer better rates, but you must be comfortable with not touching your savings for a long period, usually between one and five years.

The best fixed-rate account currently offers 5.30% and is available on the Flagstone platform, provided by Mizrahi Tefahot Bank

This fixed-term personal savings account requires a minimum of £10,000 to be locked for three months. You can invest up to £1,000,000. Withdrawals are not allowed for the duration of the deal and you can only open this account online.

The same deal is available for a six-month lock where the rate comes in at 5.26%

The Union Bank of India in the UK has a 5.25% offer for one year in a savings account that can be opened with £1,000. The maximum balance for the bond is £500,000.

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.

Barclays (BARC.L) offers the highest rate among high-street lenders, with a one-year fixed-rate savings account that pays 4.65%. The requirements aren't too stringent, with the minimum balance required being £500.

Read more: Best UK mortgage deals of the week

Metro Bank isn’t far off with its 4.61% interest rate and similar conditions. The account has a one-year fixed term and the minimum you have to pay in is £500.

Lloyds (LLOY.L) has a fixed-rate savings product offering 4.35% for one year. However, the minimum deposit is £3,000 and you must have or open a Lloyds current account or a different savings account to be eligible. For new clients, the interest is 4.15%.

Unlike easy-access savings, 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 one, two, three or even five 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 comes lower interest rates, but they are a good option for those who think they might need their money in a hurry.

Read more: When you have to start paying tax on your savings

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.

Ulster Bank has the highest paying offer for easy-access accounts at 5.20%, but you need at least £5,000 to open the account and there is no maximum limit.

Principality pays 5% with an easy-access account that pays interest annually. The account can be opened online with a minimum deposit of only £1.

Paragon pays 4.91% for those with £1,000 to open the account. 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 7%, but it is only for current account holders.

Skipton Building Society pays 5.5%, but again the deal is only available to mortgage holders or those who had a savings account with the lender before January.

Can’t decide on whether you want to put your money away and not touch it for a long period 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 the temptation of dipping into it at any time.

You need to give the bank or building society a set amount of advance warning before you can withdraw your money — usually between 30 and 120 days.

Prosper has a 365-day offer that pays 5.50%, currently the top offer on the market. You’ll need at least £20,000 to open it and can deposit up to £250,000. The same bank offers a 185-day notice account that pays 5.34% with the same requirements.

Read more: What you need to know before buying a second home

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

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 over 10% returns.

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.

Virgin Money has come out with a market-leading 10.38% offer for a regular saver account. You only need £1 to open the account and you can put up to £250 a month in it. There is no minimum monthly limit to pay in and you don’t have to pay into the account each calendar month.

This is a fixed interest account with a maturity date of 31st July 2025 and you need to have a current account with Virgin Money which was opened on or after 4 December 2019. Or, you originally opened your current account with Clydesdale Bank or Yorkshire Bank such as a Signature Current Account.

Principality offers 8% 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.

For existing customers, First Direct offers 7% for a year and allows a maximum monthly deposit of £300. You are not allowed to skip months, with a minimum of £25 required to be deposited in the account every month. You are not allowed any withdrawals without a penalty and, if you close the account before the 12 months are over, interest drops to 2%.

The Co-op bank has a 7% deal for existing customers. Fixed for one year, you can save up to £250 per month and can skip months without penalties.

For all of the offers listed above, you can just open an account to access the deal.

Every deal mentioned here is covered by the Financial Services Compensation Scheme, so you are protected up to £85,000.

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