This article was updated on March 28, 2021
This article will discuss the best savings accounts in the UK for people living locally, and UK expats living overseas.
The article will look at different options and finish by suggesting what you can do if you are unhappy with bank savings rates.
Table of Contents
At an emergency meeting that took place at the Bank of England on 10th March 2020, the UK’s Monetary Policy Committee (MPC) voted to lower the official lending rate to 0.25 per cent.
This decision was taken unanimously and it was followed just a week later by a further drop to just 0.1 per cent. There is now widespread talk that the MPC could go a step further and introduce negative interest rates for the first time in its long history.
Although that remains speculation for the time being, at least one high street financial establishment – Tesco Bank – has already announced that it will offer no interest at all to savers from 22nd September 2020.
Of course, for many current account holders in the UK, the difference between a 0.1 per cent interest rate and one that is set to zero is neither here nor there. Such accounts are not designed to be investment tools, after all.
However, the outlook certainly appears to be bleak for investors when it is taken at face value. Of course, diversifying out of wealth stored in pounds is one option but there are investment vehicles that both UK residents and those who live overseas can take advantage of.
In this article, I’ll be looking more closely into the sort of savings accounts that offer a reasonable return given the wider economic climate for people who want to keep at least a proportion of their wealth in sterling.
Who benefits from savings accounts?
Before we start to compare the various savings accounts that are available in the UK, it is important to ask just which sorts of investors can benefit from these sorts of financial products. The short answer is that everyone can.
Anyone who wants to keep their money in sterling – as opposed to Euros or US dollars – really ought to be looking at the investment products on offer from banking establishments in the UK.
That said, everyone is different. Some people are likely to want instant access to their funds even if they don’t want to touch them at present.
Others will be willing to tie up their liquid assets for five years or more because they have disposable income from other sources or live and work abroad where they are earning in another currency
. As such, what my aim is here is to guide you through the best savings accounts in the UK without simply listing them according to which has the highest headline rate of interest.
Given the current economic situation and the future decisions that the MPC may or may not take, it is important to take on board that the situation with interest rates is likely to be fluid for some time.
Therefore, what I’m outlining for both UK residents and expats is a guide to the best savings accounts for a range of different investment needs.
Of course, more than one might suit you given how much you have to invest and how much of your wealth you can tie up.
Please feel free to contact me if you would like to discuss your personal circumstance with respect to savings accounts further. In the meantime, let’s progress to the most favourable accounts for savers on offer right now.
Instant access savings accounts
If you know that you could need to withdraw your funds from your savings account at any time, then an instant access account is likely to be for you.
National Savings and Investment (NS&I) offers 1.15 per cent on Income Bond deposits ranging from £500 to £1 million per person with no penalties for withdrawals.
The account is backed by the government and your account can be managed online as well as by phone or post so it will suit many British investors who live at least part of the year overseas. Interest is calculated every month. However, there is a minimum withdrawal of £500 to take into account.
The other NS&I savings account worth considering is called Direct Saver. It pays interest at 1 per cent but you cannot manage it by post. However, phone and online account holders can save from as little as £1 to £2 million. Like Income Bonds, interest paid on Direct Saver accounts is taxable. Withdrawals are allowed at any time and the account will remain open and earning interest so long as you keep the minimum sum of £1 in it.
Outside of the government-backed saving schemes, the Leeds Building Society has a Limited Issue Online Access Account which offers an interest rate of 0.85 per cent. This is only payable when the invested sum matures which is set for 1st September 2021. You can add to your invested sum or make withdrawals at will with this account but you will need to have at least £1,000 to invest. The maximum sum you can invest is £1 million.
The Yorkshire Building Society also has an account with a return of 0.85 per cent.
This is available to investors with at least £10,000 to invest. However, if you have half a million or more that you’d like to save, then the rate will go up to 0.95 per cent. Again, it is perfectly possible to open and manage your account online with this particular savings account.
Notice period savings accounts
If you opt for a savings account whereby you need to give advanced notice of a planned withdrawal, then you will often see more competitive interest rates.
The downside is that you will not be able to get your hands on your money instantly or without a penalty fee, at least. That said, those investors who are not expecting to make withdrawals can benefit from this form of saving account.
Currently, United Bank Ltd has a savings account that will pay interest at 1 per cent. It is only open to postal applicants but it will cater for a wide variety of saving needs given that it can be opened for sums from as little as £1 right through to £1 million. What’s particularly attractive about this account is that it only has a 35-day notice period to take into consideration so it offers a good degree of flexibility.
Allicia Bank is offering its savers an account which will pay interest at 1.1 per cent at the moment.
It can be opened online which is a good deal more convenient for many customers and, like United Bank, investors are protected under the Financial Services Compensation Scheme (FSCS) for sums of up to £85,000.
The minimum investment to open this account is £10,000 and the maximum is set at £250,000. The catch is you will need to provide a 95-day notice period to make a withdrawal.
Individual savings accounts (ISAs)
The big difference between an ISA and a conventional savings account is that it will allow you to earn interest free from tax. In 2020-21, the tax-free sum that is allowed for all ISAs is £20,000. Therefore, many investors choose to invest this sum in an ISA and the rest of their available funds in a straightforward savings account. This way, they get the opportunity to optimise their personal tax allowance.
Like personal savings accounts, ISAs come in several forms. Some provide instant access to your invested sum while others require a notice period to make withdrawals.
The best interest rates tend to be associated with fixed-term accounts running over five years. ISAs are a whole investment field in their own right so if you need guidance, then do get in touch. In the meantime, let’s deal with some of the best performing ISAs right now.
If you are looking for instant access, then Al Rayan Bank, based in the UK, offers a cash ISA paying at a 1 per cent interest rate. Its interest is paid monthly and there are several different methods for opening and managing your account.
Cynergy Bank and NS&I both have cash ISAs that pay interest annually at a rate of 0.9 per cent. Both of these can be managed online.
If you can tie your money up for a longer period in a tax-free ISA, then a five-year one that pays interest on the anniversary of when you took it out is likely to be more appealing.
Furness Building Society and Shawbrook Bank both offer such ISA’s over a five-year term which pay interest at 1.3 per cent and 1.1 per cent respectively. UBL UK has a similar one which pays at 1.21 per cent. However, interest will only be applied on the maturation of the full five-year bond, not annually.
Savings Accounts, ISAs and Expatriates
Brits living overseas should be aware that they will need to supply their name and address to open an ISA and to benefit from it. Doing so online still means needing to enter correct details.
The same goes for the majority of savings accounts where interest will have to be paid.
However, if you already have a current account with a UK bank and did not close it when you moved overseas, then it can sometimes be possible to transfer your savings into another type of account, whether that is a cash ISA or a more conventional savings account.
Again, specialist advice may be necessary to avoid falling foul of the regulations – something I’d be only too pleased to guide you with.
Tax-free saving in the UK
If you are looking for tax-exempt investments in the UK, then there are other options worth looking into. NS&I offers Premium Bonds, for example.
These do not accrue any interest and nor is interest charged on them but you can win prizes from a random draw that takes place each month. Strctly speaking, this is not a genuine savings account, however.
Some investors opt for stocks and shares ISAs instead of the convention cash ISAs.
More advice is needed for these savings products because you tie your investment to the shifting prices associated with stock markets.
In other words, you can lose money as well as accrue it. You do get the same tax-free amount as a cash ISA, however, which stands at £20,000.
Investing is a better way than saving long-term, if you are getting sensible advice and don’t mind volatility.
The importance of customer service
So far, I’ve been talking about the best savings account from the point of view of interest, access to funds and the ease by which you can open and manage your account.
These are all important factors when it comes to deciding which type of savings account is right for you, of course.
However, they are not the only considerations to weigh up. How much of your money might be protected under the FSCS scheme is also crucial.
In addition, I think it is a good idea to talk a little about customer service.
Not all financial service providers offer the same level of customer service. If you intend managing your savings account online, then customer service may not be such an important factor but how any institution interacts with its clients plays a part in the overall customer experience.
According to a number of surveys and independent assessments, First Direct – a subsidiary of HSBC – often wins out in terms of customer service.
RCI Bank UK, Yorkshire Bank and Shawbrook Bank are all rated very highly, as well. On the other hand, if you are looking for a building society savings account, then Nationwide and the Coventry Building Society are both highly thought of by many of their customers.
Of course, customer service ratings tend to include the views of borrowers as well as savers but it is a good yardstick to differentiate two or more potential savings accounts you might open.
If they are very similar in the withdrawal access they offer and the interest rates they provide, then why wouldn’t you choose the institution with the better customer service rating?
There are many options for UK-residents and people who work overseas but who still retain links to the UK for saving.
Even when interest rates have been at a historic low, the savings account marketplace remains a competitive one.
People with lots to invest or who have a specific need – such as living abroad with no UK address or who are saving for a house deposit, for example – should seek specialist financial advice from an independent source. If you need some help, then feel free to chat with me.
Expat specific savings accounts
If you are open to USD deposits, there are some fixed deposit options for expats paying 1.5%-3.5% per year, depending on how much liquidity you want.
Fed up with 0% interest rates?
Contact me for more productive investment and savings opportunities.
Are the private investment banks the best place to put your money?