With interest rates rising fast, savings providers are upping their rates like there's no tomorrow. The top easy-access savings deal currently stands at 2.75%, while the top one-year fix pays 5.05%. Following years of rock-bottom interest rates, deals like these represent a huge, refreshing change for savers.
Yet it's not just savings accounts that are competing for saver's cash. A number of bank accounts have started to offer headline-grabbing savings rates in an effort to attract new customers. One current account now offers savers an impressive 5.12%.
So should you stash your savings in a bank account? Or is it best to stick with normal savings? Let's explore.
Keeping cash in a bank account (a brief history)
In years gone by, keeping a large amount of cash in a current account was best avoided. That's because the interest rates on offer were often miserly.
Instead, savers were better off transferring the majority of their cash to a competitive savings account, keeping only a small proportion in their current account for everyday spends.
Yet over the past few years growing competition for customers has forced banks to re-think their offerings. Some banks began offering cashback on bills. Others shamelessly bribed new customers with cold, hard cash for switching accounts. Meanwhile, some banks focused on headline-grabbing interest rates. These are known as 'high interest bank accounts.'
Prior to 2022, it's fair to say that the number of high interest bank accounts had diminished somewhat. Yet, over the past few weeks they've come back with a bang.
What high interest bank accounts are available right now?
If you're looking to max the interest on your cash, now's great time to take action. Not only have rates on normal savings accounts increased, but there are also a number of high interest bank accounts paying generous rates of interest. Be warned though, these accounts typically aren't as flexible as normal savings accounts, and some will only allow you to earn interest on small sums.
Here's the lowdown of the best high interest bank accounts out there right now:
1. Barclays - 5.12% AER variable
The Barclays Rainy Day Saver account pays a whopping 5.12% AER variable on up to £5,000. Anything above £5,000 earns just 0.15%.
It's a savings account, but in order to open it, you must have a Barclays bank account and sign up to its Blue Rewards scheme.
In order to be a member of this scheme, you must pay in at least £800 per month. There's also a monthly £5 fee to join Blue Rewards, but this will be waived if you pay out two direct debits from your Barclays current account each month.
2. Nationwide - 5% AER fixed for 1yr
The Nationwide FlexDirect account pays 5% AER fixed interest on up to £1,500. You can earn this as long as you haven't had the account before. Above this, you earn just 0.25%.
To keep the account you must pay in at least £1,000 per month. As an added boon, you can bag a free £200 for switching to Nationwide.
3. Chase - 2.1% AER variable
The Chase current account allows you to open a linked savings account paying 2.1% AER variable. When Chase launched in the UK just over a year ago, it offered a savings rate of 1.5% - market-leading by some margin at the time. Yet given that rates on normal easy-access savings accounts have since rocketed, Chase responded by upping its rate.
While its new rate is still below the market-leading deals, it's worth knowing that Chase's bank account is a decent all-rounder. Its debit card doesn't charge for overseas spending, while the account offers 1% cashback on spending for a year.
You can save up to £250,000 in Chase's account, though all savers should be careful not to exceed the £85,000 FSCS savings safety limit.
Bank account or savings account: which wins?
If you've savings and you don't want to lock away your cash, it's fact that the highest rates available right now are through current accounts. Yet it's important to note that the top to high-interest bank accounts, from Barclays and Nationwide, only allow savers to earn big interest on relatively small amounts (£5,000 for Barclays, £1,5000 for Nationwide).
So while there's nothing wrong with opening these accounts for the purposes of maxing the interest on your cash, if you've a chunk of savings, you may find it more straightforward to put your money in an easy-access savings account where low, maximum limits aren't really a 'thing'.
For a list of the top easy-access accounts available right now, take a look at our best savings accounts guide.
Don't forget tax on savings interest...
While rising interest rates is a positive for savers, it's worth keeping in mind the tax-free Personal Savings Allowance. This refers to amount of savings interest savers can earn without being liable for tax (in a non-ISA account). For more on this, take a look at our article which explains the Personal Savings Allowance in more detail.
Please note that tax treatment depends on your individual circumstances and may change in future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence.