Money Saving Expert Martin Lewis has lifted the lid on savings accounts this week on his show.
ITV’s weekly Martin Lewis Money Show sees the financial journalist tackle questions from ‘wallet watchers’ up and down the nation, and tonight, he had some top tips for those with savings accounts.
On Thursday night he pointed out that the top interest rates for savings have more than doubled since March – so now is the perfect time to “make sure every penny pays”.
“The top savings interest rates have improved massively recently, I’m still not saying they’re great, but they have gone up a lot. Back in March the top easy-access account paid 0.4% now it pays 0.67% – so that’s the same interest and over half as much on top.
“The top two-year fix was just 0.74%, now that pays 1.6%, so that’s over double what it did pay. Now the reason that these rates have gone up is because long-term predictions of interest rates have gone up and that’s what these are set on, and there’s competition in this market when there wasn’t before.
“But what’s fascinating for me is that if we go back a year and a half, fixed-rate savings and easy access saving paid roughly the same, but that gap has grown so fixed rates are now massively more competitive than easy access, so they’re a good bet.
“The problem with all this though, is that none of these rates are even close to inflation, so the truth is savings accounts are still losings accounts, but you want at least the best savings you can because it mitigates the impact of prices rising, so my big call to everybody watching is if you’ve got savings, go and check what interest rates you’re paying, and then compare it to the rates I’m going to talk you through.”
Help to Save
Martin first talked through his picks for ‘unbeatable’ savings accounts for interest rates, starting with the Government’s Help to Save scheme.
“These are the unbeatable accounts for interest rates – if you can do it, you should – for those who are on a low income, for example if you’re on Universal Credit, there’s the government’s Help to Save system.
“Here you can put up to £50 a month in over two years and it pays you a bonus – 50% on the highest amount you have in, so after a year say you have £600 in, you have a problem and need the cash, which many people on low incomes will find, so you put nothing in for the rest of the two years.
“Because the highest amount you had in was £600, 50% of that is £300 – that’s the bonus you’ll get, totally unbeatable. If any of you are eligible for that, you need to go for it, it’s a big winner.”
Lifetime ISA (LISA)
“Very similar is the Lifetime ISA for first-time buyers,” Martin said.
“If you’re aged 18 to 39, as a first-time buyer buying a qualifying house, which is pretty much any residential home which costs less than £450,000, you can get a 25% bonus on your savings towards it.
“You can put up to £4,000 a year in, so the maximum bonus each year is £1,000. The top Lifetime ISA is with Moneybox at 0.6%. You do need to do a bit more reading, but absolutely, first-time buyers or those thinking about it, that’s a very good place to save.”
Top fixed-rate savings accounts right now
Fixed-rate savings mean you lock your money away and cannot access it during that period so you have to be aware of that – these accounts typically pay higher interest rates because they can guarantee holding onto your cash for a longer period of time.
Martin said: “The top one-year fixed rates right now? Zopa – 1.35%, you can also get a fixed cash ISA, they pay less – Hampshire at 0.95% – you can withdraw from a cash ISA though but you pay a hefty interest penalty if you do.
“Top two-year fixes – SmartSave 1.6% but a minimum deposit of £10,000, so Zopa’s slightly less at 1.59% but only £1,000 minimum deposit. Top cash ISA there again pays much less – Close Brothers at 1.2%.
“Now this may surprise you but UK-based Islamic banks – so fully UK-regulated, have the full savings safety, that are Sharia-compliant, do pay more – Al Rayan’s one-year fix is 1.45% with a £5,000 minimum deposit, two-year is 1.76%.
“But it isn’t interest – because you can’t have interest under Islam – it’s expected profit, though no UK-based Sharia account that I know of has ever not paid the full rate.
“So you may want to access it – you don’t have to be a Muslim to do it and they do pay higher rates, and if everything goes to plan, you would get more that way.
“You may be thinking ‘you could fix longer,’ – you’re right, you can get a five-year fix that pays over 2%, but with the prediction that interest rates might go up, if you’re locked in for five years at 2%, in a couple of years’ time you might look back and think ‘why am I locked in,’ so it’s a tricky decision, but go and look online and find those best rates.”
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