Summer sizzlers - which savings accounts are hot this summer

Summer sizzlers - which savings accounts are hot this summer

17 August 2012 / by Oliver Roylance-Smith

With the fantastic memories of our valiant Olympians still fresh in the mind, it is also good to know that there are a strong number of savings accounts that are also performing well this summer. To help you see what’s hot, we give you our selection of summer sizzlers from the best the market has to offer.

Instant access

There are a number of instant access accounts offering over 3%, all of which include a bonus which is normally paid for around 12 months. Our selection here includes the MySave Online Plus from Nationwide paying 3.06% AER, because it contains one of the smaller bonus rates of 1.52% for the first year. The account can be opened with £1,000 and you are allowed one free withdrawal each year with unlimited deposits.

We also make a mention of the Scottish Widows Bank Direct Transfer Account since although the headline rate is slightly lower at 2.60% AER, the bonus included is one of the smallest in the market at 0.69% which means your rate only drops to 1.91% after 12 months. This account also has a minimum opening amount of £1,000 with interest paid monthly, quarterly or annually. Unlike other accounts, there is no notice period or charges for any withdrawals. Access is by internet, phone or post.

Notice accounts

With persistent low interest rates continuing to cause real headaches with investors, notice accounts have really come to the fore recently as they can offer a competitive rate without requiring you to commit for a minimum of 12 months, like a fixed rate bond does (which also do not normally permit early withdrawal at all). With rates that stack up very well against leading 1 and 2 year fixed rates, it is clear to see why they have increased in popularity.

By far the most popular is a market leading rate from Gilliat who are offering 3.50% AER on their 180 Day Notice Account. Your deposit is held with Arbuthnot Latham Private Bank and the period of notice which they are required to give before changing the headline rate is the same as the Notice Period (i.e. 180 Days) so you have plenty of time to review your options. The minimum deposit is £50,000, but we must receive applications by the end of August.

Short-term fixed rates

United Bank is offering 3.45% AER on their 1 Year Fixed Rate Bond with a minimum deposit of £2,000 and the option to have interest paid monthly. United Bank is the trading name of United National Bank which was formed in 2001 from the merger of the UK branches of two Pakistani banks, United Bank Limited and the National Bank of Pakistan.

Top of the picks in the 2 year fixed rate category is Cater Allen’s 2 Year Fixed Term Deposit which offers a very attractive 3.60% AER. The minimum deposit is £50,000 and all deposits held by Cater Allen are 100% guaranteed by Santander UK plc, however they also hold their own banking licence and so qualify separately under the Financial Services Compensation Scheme (FSCS). This rate is available for a limited period only and applications must be received by the end of the month.

Medium term fixed rates

Our selection is from within the 3 year space with Vanquis Bank offering 3.81% AER on deposits from £1,000 with a monthly interest option and Cater Allen feature again with their 3 Year Fixed Term Deposit offering 3.70% AER on deposits from £50,000. Neither of these accounts permit withdrawals during the fixed rate periods and both have their own individual banking licences for FSCS purposes with Cater Allen’s deposits also having a 100% guarantee from Santander UK plc as mentioned above.

Medium term fixed rate bond alternative

The recent surprise increase to both measures of inflation continues to fuel the spotlight on low savings rates, especially those of medium term duration. The Consumer Price Index rose to 2.6% whilst the Retail Price Index climbed to 3.2%, meaning that taxpayers have to earn a minimum of 3.25% and 4% respectively just to stand still. There are no 3 year fixed rates offering 4%.

Investec’s 3 Year Deposit Plan offers an interesting alternative with the opportunity to return 15% provided the FTSE 100 finishes higher than its starting value at the end of the three year term, subject to averaging. Your return is therefore dependent on the FTSE, rather than being fixed, but 15% is equivalent to 4.75% per year compound - a healthy premium on leading fixed rates.

Long term fixed rates

The premium for committing your savings for the longer term has narrowed even further recently and yet the demand for this length of fixed rate is still high. Vanquis Bank feature again with their 5 Year Fixed Rate Bond offering 4.06% AER with a minimum deposit of £1,000. There is a monthly interest option but no withdrawals are permitted.

Long term fixed rate bond alternatives

There are a range of deposits available which provide the opportunity to receive potentially higher returns than you would from a fixed rate by linking your return to the stockmarket, normally the FTSE 100.

The main difference with these accounts therefore is that your return is not fixed and so you may receive only a return of your initial capital. However, with very few longer term fixed rates offering much over 4%, if you are prepared to accept this in return for the potential to receive higher returns then there are a number of options available. One such example is the Royal Bank of Scotland’s Accelerated Growth Deposit Plan which will provide 150% of any rise in the FTSE 100 over the term, subject to a cap of 45% gross of your original investment.

These plans are usually issued in tranches with limited periods of around 6 weeks within which to apply. There is a wide range to choose from which is constantly being updated with new ideas, and with such historically low yields currently available on longer term fixed rates, it is no surprise that the market for finding alternative options is growing at a rapid pace.

Compare instant access accounts »

Compare leading notice accounts »

Compare fixed rate bonds »

Compare fixed rate bond alternatives »

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek professional advice.

Some of these plans are structured deposit plans that are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

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