Ever fantasised about getting a message from your bank to say they’re going to start paying you free money?
Depending on the type of savings account you use, this can actually be the reality – and with interest rates rising over the past few weeks, many savers have actually received texts or emails to tell them that their money is about to start earning more.
Using a high interest savings account can be a great way to offset price rises in other areas. Even with a small amount of savings, you can use the interest to top-up your emergency fund or cover the occasional treat. So how do you go about finding a high interest account? And how much could you be earning?
‘Regular’ savings accounts
These accounts are not regular in the sense of being average, but rather in the sense that you need to make a regular monthly deposit. Usually offered by banks specifically for their existing customers, they offer high rates of interest (at time of writing, as much as 5.12%), but ask you to deposit a regular amount. Usually you make payments into the account for a year, after which the interest is paid and the account is generally converted into a standard savings account.
There’s one big catch, and that’s the limit on how much you can pay in. These accounts have a maximum monthly deposit, usually around £150-£250. For a typical British household, this should cover most of your monthly savings, and it’s certainly enough to help you start building up a savings habit. However for those with existing pots of savings or more to put away, it’s worth looking at the next option…
If you don’t need access to your money too quickly, you can lock it away in an account for a set number of months or years in return for a higher rate. Do keep in mind, that once the money is in, the rate is fixed. This means that in a turbulent time when rates keep increasing, it may pay to wait until a better offer is on the table or choose a shorter term fix – around six months – ready to switch your money into a higher-rate account.
Some of the bank accounts offering the best accounts are Atom Bank, United Trust Bank, Virgin Money, Cynergy Bank and Shawbrook Bank. When you’re ready to save, shop around to see who’s currently offering the best deal.
How much will I earn?
As an indication, saving £250 for a year at a rate of 5% would give you £3082.50 – that’s £3,000 of saving and £82.50 from the interest. At 3%, the total would be £3,049.19. For this example we’ve assumed you won’t be paying tax on the interest, as this is the case for most moderate savers. While £82.50 may not be a huge sum of money, it shows how the interest from savings can start to add up, and at least give you enough to cover some of your smaller expenses. Even with a much smaller amount of money – as little as £10 a month – starting a savings habit is always a good way to start gaining control of your finances.