Summer Sizzlers, Part 1 – Which Savings Accounts are Hot this Summer?

Written by Editorial Team
Last updated: 5th August 2014

It’s not only the performance of our athletes at the Commonwealth Games that has been sizzling this summer, as there are clear signs that the savings market is beginning to hot up by offering more competitive rates and bringing some much needed innovation. In the first of a two part feature, we let you know which savings accounts are also performing well this summer by giving you our selection of summer sizzlers from the best the market has to offer.

Inflation and interest rates keeping us on our toes

But it’s not just the athletes that are being talked about. Inflation had been expected to come in around the 1.60% but instead the Consumer Price Index grew by 1.90% in the year to June, the largest increase for almost 2 years. It also means that basic rate taxpayers need to earn at least 2.38% just to break even, higher rate taxpayers over 3.16%.

However, although the increase hands the Bank of England even more ammunition for a rise in interest rates, most economists are in agreement that rates will start to rise next year – or perhaps at the end of this year but that a sharp and sudden rise is extremely unlikely with a slow and limited increase expected. However, things can change and change quickly, so the bottom line is that whatever happens, you need to be aware of the implications of inflation and the impact interest rate rises may have before deciding which route to take.

Savings accounts – what’s hot?

Regardless of how long you can tie up your money, from instant access to long term savings alternatives, there should be something here for everyone including guaranteed fixed rates, rates that can increase with interest rate rises, as well as savings alternatives which offer the potential to beat rising inflation.

Instant access

Research from the financial services regulator, the Financial Conduct Authority, recently stated that loyal bank customers are not being rewarded and are experiencing lower rates on their savings compared to those who shop around. Their research showed that while the average interest rate on an instant access account opened in the last two years was 0.8%, accounts that were opened more than five years ago offered just 0.3%, the effect of introductory bonuses ending being one of the main culprits.

Savings Maximiser is a cash management service  that compares the best buys from across the market and by regularly reviewing your accounts and making switches if a better rate is available, aims to secure a consistently competitive rate of interest. Aimed at those who want to retain instant access to their money at all times and have at least £25,000 to keep on deposit, the service offers full banking facilities and is simple, secure and saves you time. With the ever increasing number of savings rates on offer, the pace of changes to market leading rates and potential interest rate rises on the horizon, this could be a perfect time to consider this service.

Click here to find out more about Savings Maximiser »

Short term savings – 1 Year Fixed Rate Bond, 1.95% AER

With predictions pointing to a base rate hike above 1% unlikely until 2016, one year fixed rates are proving popular and for those who are able to tie up their money and are also looking for a fixed and regular rate of interest, Investec Private Bank is offering 1.95% AER on their 1 Year Fixed Term Deposit. The minimum deposit is £25,000 and interest can be paid annually or monthly, the account can be set up as a single or joint account and access to account information is online or via telephone. As with most fixed term accounts, no early withdrawals are permitted. You can apply online, request further information to be sent to you via email of have someone from the bank call you back directly.

Click here to find out more about the Investec 1 Year Fixed Term Deposit »

Medium term savings – 3 Year Base Rate Plus, 2.60% AER minimum

Investec has also shown some welcome innovation in the market with their 3 Year Base Rate Plus. The account pays 1% AER/variable above the Bank of England Base Rate but with a minimum rate of 2.60% AER, so whatever happens you know you will never earn less than this.  Interest is not compounded and will be paid into your nominated account annually. No early closure or withdrawals are permitted.

The Base Rate Plus account offers innovation for savers by combining a competitive minimum return that is fixed, along with the potential to benefit from any increase to the Bank of England Base Rate for those who think it could perhaps rise quicker than currently expected.

Click here to find out more about the Investec 3 Year Base Rate Plus Account »

Medium to long term savings alternative – potential 5.25% each year, from year 3

For those prepared to tie in for the longer term but who would like the opportunity for their plan to mature early, the Kick Out Deposit Plan from Investec offers the potential to mature from year 3 onwards. The plan offers a potential 5.25% per year (not compounded) and will mature early or ‘kick out’ provided the value of the FTSE 100 at the end of each year from year 3 onwards, is higher than its value at the start of the plan (subject to averaging) – even by just one point. That’s a potential 15.75% after 3 years. If the Index is lower on all of these dates you will only receive a return of your initial deposit.

Our leading 3 year fixed rate bond is paying 2.65%, with lower rates available for fixing within a Cash ISA.  So if you’re looking for new ways to use your savings and are prepared to sacrifice a guaranteed return, this plan could provide almost double the current fixed rates on offer.

Click here for more information about the Investec Kick Out Deposit Plan »

Long term savings – 5 year fixed rate bond, 3.11% AER

The additional premium for committing your savings for the longer term has narrowed recently and yet the demand for this length of fixed rate is still high. Vanquis Bank’s 5 Year Fixed Rate Bond is currently offering 3.11% AER with a low minimum deposit of £1,000 and you can apply online. There are annual or monthly interest options but no withdrawals are permitted.

Click here for more information about the Vanquis Bank 5 Year Fixed Rate Bond »

Long term savings alternative – maximum 40% growth return

For those looking for the potential for higher growth and are prepared to tie their money up for the longer term, the Defensive Supertracker Deposit Plan from Morgan Stanley offers a number of features that savers might find attractive. Firstly, your return is linked to any rise in the FTSE 100 Index over the term, which is then doubled (subject to a maximum return of 40% of your initial investment) and secondly, the rise is based on any increase above 95% of its starting level. So even if the FTSE ends the same you would receive 10% (2 x 5%), and if it rose by 10% you would receive a 30% return (2 x 15%). If the Index finishes below 95%, no growth return would be paid and you will only receive your initial capital back.

Finally, your initial deposit is protected whatever happens to the FTSE and is also eligible for FSCS protection – Lloyds Bank plc is the deposit taker for this plan. Our leading five year fixed is offering 3.11% AER, so if the FTSE rises by over 15% at the end of the term, you could more than double the leading fixed returns on offer, but if it only goes up a little or falls, you would have been better off with a fixed rate.

Click here for more information about the Morgan Stanley Defensive Supertracker Deposit Plan »


Compare instant access accounts »

Compare one year fixed rate bonds »

Compare three year fixed rate bonds »

Compare five year fixed rate bonds »

Compare alternatives to fixed rate bonds »

AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

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.