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What are the best savings accounts?

piggy bankDo you know if your savings account is any good? With inflation currently at 2.1%, you need to get at least that not to see the money in your savings account losing its spending power. Sadly, that’s impossible with an easy access account. You can beat inflation on fixed rates, however. Here’s our pick of the best accounts – fixed, easy access and cash Isa - and our five must-know rules on how to save successfully.

Best easy access account: Marcus by Goldman Sachs paying 1.5% (including a 0.15 bonus) on £1. Others offer this rate but either limit withdrawals (Virgin Double Take E-Saver and West Brom BS Websave Double Access) or limit deposits (Family Building Society, which pays 1.51%). For branch-based easy access account our best advice is to check out small, local building societies (for example, Newbury) which can offer good deals on accounts for locals. You could try current accounts such as TSB and Nationwide, both of which pay 5% on credit balances – but there will be conditions such as having to pay in a certain amount of money to the account every month.TSB only pays 5% on up to £1,500 deposited. At Nationwide, it’s £2,500.

Best fixed rate account: You can get 2.68% on a fixed rate account, easily beating inflation. But we wouldn’t – because to get this rate from Gatehouse you have to tie your money up for five years. In the current climate we wouldn’t fix our savings for more than two years. For two years, you can get 2.35% from Gatehouse on £1,000 plus. If you’ve less money, Atom pays 2.25% on £50 plus. Don’t put money in a fixed rate account if you think there’s a chance you’ll need to get at it in an emergency.

Best cash Isa: For a fixed rate cash Isa, we’d go for Coventry Building Society’s two year deal at 1.9% on a minimum £5 or for a variable rate deal, Paragon Bank’s 1.45% on £1 plus. But as these rates can be beaten by ordinary savings accounts to be honest we’d use our Isa allowance - £20,000 in this tax year – for investing rather than saving. Which brings us to our first rule of saving..

1. You can earn up to £1,000 in interest from savings accounts free from tax - £500 if you’re a higher rate taxpayer. Given that interest rates are low this means most of us won’t pay tax on our savings. Moneysavingexpert says you’d have to have more than £78,000 in the best-paying savings account to earn more than £1,000 in tax.

2. So don’t worry about tax on saving – and don’t automatically think a cash Isa is a good idea. You could do better in a ‘normal’ account.

3. Look beyond the big names for the best deals. The ‘challenger’ banks – new entrants to the savings market – tend to offer good deals as do App only banks. Don’t forget small local building societies.

4. Check the credentials of any bank or institution you’re saving with. Nearly all (apart from a few European ones covered by passporting arrangements to the same level) will be covered by the UK’s Financial Services Compensation which covers up to £85,000 deposited.

5. Watch out for bonuses on savings accounts which can boost rates. Make a note on your phone/calendar when the bonus comes to an end and make sure you check and move your money if the rate drops so much it’s no longer attractive.

See our guides to saving and investing here

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Sunday, 21 April 2019