Choice of savings products hits record high – how to secure the best rates

The number of savings products has risen to a 19-year high, according to Moneyfacts UK. However, while the variety of products may entice savers to act, apathy persists and over £300 billion remains in UK accounts earning little to no interest. Head of Money at Spring, Derek Sprawling commented that “This money is being eroded in value by inflation and could be generating much better returns if moved to a savings account offering a good rate of interest.”

Increased savings products and providers

The number of savings products (including ISAss) available in the market has increased to 2,394, a 19-year high. Having more products to choose from means there is greater competition among providers to acquire customers, as reflected by the numerous introductory bonus rates on offer. Moneyfacts’ Personal Finance Analyst, Caitlyn Eastell says, “Savers now have more choice than ever before as the number of products and providers reach record-highs. Lesser-known banks help the market grow and can be a source of innovation as they typically need to compete harder for savers’ hard-earned cash".

As savers organise their financial affairs to utilise and maximise the use of tax-free savings ahead of the end of the financial year, they will find that there are now around 100 ISA providers, offering over 650 ISA products - a record high.

Savings rates fall while competition persists

Although this broader product selection offers savers more options, the average interest rate on an easy access savings account has fallen from 2.48% in January to 2.41% in February, while average easy access ISA rates fell from 2.69% to 2.58%. Savers who can lock away money and forgo access, even for as little as six months, may find better savings deals that pay higher returns.

Also, easy-access cash ISAs are currently paying higher interest rates than non-ISA easy access accounts. Cash ISAs, either directly or through savings platforms, are offering attractive bonus rates for a limited period, with rates as high as 4.40% AER available on easy-access cash ISAs. However, you should be aware that these bonuses are typically available for a limited time and may be part of an introductory offer. Be careful to note the date the initial offer expires, as the rate paid after that period may be much lower than what you could potentially secure by switching to another product.

How to find and secure the best savings products for your needs

With such a large number of products, it may seem difficult to choose where to put your savings. Although headline rates may attract your attention, choosing the right type of savings account is also important.

If you are not sure which type of savings account to choose, you should consider:

• How long can you put money away for without needing access to it? - Fixed-term deposits may restrict access to funds, but usually offer higher rates of interest in return
• The tax that you may have to pay on interest earnings based on your tax status - Consider arranging your savings in a way that minimises the tax you pay on the interest you earn. You can earn up £1,000 in interest outside of an ISA without the need to pay tax if you are a basic rate taxpayer, £500 if you are a higher rate taxpayer, while additional rate taxpayers have to pay tax on all interest earnings.
• Have you utilised all of your tax-free allowances for earning interest? In each tax year, individuals can deposit up to £20,000 into ISAs and earn interest tax-free. Children won’t be taxed on interest earned on deposits up to £9,000 while those with Lifetime ISA (LISA) deposits are exempt from tax on any interest received and they can deposit up to £4,000 into a LISA each tax year.

To find savings products that offer the best rates, see our regularly updated article, “Best savings accounts in the UK”, where we list some of the best rates on offer across a range of savings products.

Safeguarding your savings

The Financial Services Compensation Scheme (FSCS) safeguards your deposits with licensed financial banks and building societies against the institution failing and last year, the FSCS limit was increased from £85,000 to £120,000 per licensed provider. If you are depositing larger sums of money, you should be aware of this limit in case you breach it, also bearing in mind that some banks and building societies share a banking licence.