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While rates might be on the way down, it’s still possible to find savings accounts paying decent returns.
With so many accounts to choose from, all with differing rates and conditions, finding the best home for your cash can be difficult. Everyone’s circumstances are different: some can lock cash away for years, while others only feel comfortable if they can make instant withdrawals in case of emergencies.
Telegraph Money asked Claire Jones of Flagstone, a cash deposit platform, to give her views on three scenarios that represent common questions we get asked by readers.
For simplicity’s sake, we have not considered tax. In reality, tax on savings interest would be a problem for any money held outside an Isa.
Once you earn interest over £1,000 a year (for most basic-rate taxpayers) or £500 (for higher-rate payers), returns are subject to income tax, due to the personal savings allowance.
A retired couple in their 70s with £100,000 in cash. They are happy to lock up £80,000 for more than a year, but need access to the rest – though not necessarily daily
Claire says: “The retired couple could take advantage of some longer-term fixed accounts, specifically the Al Rayan Bank 12 month Fixed Term Deposit, which pays 4.35pc.
“They can place £80,000 into this product, earning themselves interest of £3,480 a year. If they are comfortable securing a longer fixed term, and concerned that rates might be significantly lower in 12 months’ time, another option is FirstBank UK’s 2 Year Fixed Term Deposit, paying 4.11pc AER, which would generate £3,288 a year in interest.
“For the remaining £20,000, they could use their Isa allowance – Trading 212 Instant Access Cash Isa pays 4.53pc AER, generating interest of £906 a year.
“However, if they have used their Isa allowance, they could choose Paragon Bank’s instant access account, paying 4.09pc AER, earning £818 in interest.
“All of these accounts would be covered by the Financial Services Compensation Scheme. This balanced portfolio would meet their near-term liquidity requirements and generate a blended interest rate of 4.1pc to 4.38pc, equivalent to between £4,106 and £4,386 a year.”
A working woman in her 50s with £100,000 in cash. She needs ready access to £80,000 but can lock up £20,000 for up to three years
Claire says: “The lady could opt to place £80,000 into an instant-access account from Paragon Bank, which pays 4.09pc AER.
“This account allows unlimited withdrawals without any restrictions and would earn her £3,272 in interest a year.
“If she is willing to restrict access somewhat, she could achieve a slightly higher rate with the Gatehouse Bank three-month fixed term product, currently paying 4.16pc AER, earning £3,328 in interest a year.
“For the remaining £20,000, she could secure the JN Bank 3 Year Fixed Term Deposit, currently paying 4pc, earning £800 a year in interest. Alternatively, she could lock in for a shorter period and secure a slightly higher rate of 4.35pc with the Al Rayan Bank 12 Month Fixed Term Deposit, earning £870 a year.
“Her selection here would probably be driven by her view on the likelihood of significantly lower savings rates in 12-24 months.
“This balanced portfolio would meet her near-term liquidity requirements and generate a blended interest rate of 3.85pc to 4.14pc, or £3,856 to £4,142, again covered by the FSCS.”
A working man in his 40s. Has no savings, but can put aside £1,500 a month for the next five years. Doesn’t need access for five years
Claire says: “A number of big banks offer good savings rates with specific requirements. For example, Santander Edge Saver offers 6pc AER with a minimum deposit of £1 and a maximum deposit of £4,000, or £233 a year in interest. Once his savings have grown, he can reassess and diversify his investments.
“We would also suggest that he look into cash Isas to take advantage of the tax-free status. You can invest up to £20,000 in Isas each year without paying tax on the interest you earn.
“The best rates over the past 12 months have been around the 4.5pc mark. Currently, Trading 212 offers a cash Isa at 4.53pc with no minimum required. If he puts in £300 a month, he’ll get a return of £89 a year.”
A retired man in his 60s with £100,000 in cash. He doesn’t need access to all of his money immediately, but wants to generate a steady return while keeping some flexibility
Claire says: “For savers who want to strike a balance between flexibility and income, laddering fixed-term deposits can be a really effective strategy. It allows you to earn higher returns on money you don’t need straight away, while keeping some accessible in case of emergencies.
“In this example, £25,000 could be held in an easy access account with Paragon Bank, paying 4.09pc AER, earning £1,022 in annual interest.
“A further £25,000 could be placed in a 6-month fixed term account from Gatehouse Bank, paying 4.24pc AER, earning £1,050 in interest over the year.
“For the next portion, £25,000 could be locked into a 12-month fixed term deposit from Al Rayan Bank, paying 4.35pc, which would generate £1,087 in annual interest.
“The final £25,000 could go into a 24-month fixed term deposit from FirstBank UK, paying 4.11pc AER, earning £1,038 a year.
“This combination would provide access to a portion of funds at all times, while maintaining steady income from staggered maturities. It also ensures full FSCS protection across four banks, a key advantage of spreading deposits.
“Altogether, this portfolio would achieve an average blended rate of 4.19pc, generating around £4,197 in annual interest, with funds maturing every 6 to 12 months to allow reinvestment at new market rates.”
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