Savings Guide: How to make the most of your cash after rate cut

In a week the Bank of England cut the base rate to 4.25%, savings rates have started to fall, writes Anna Bowes, savings expert from The Private Office.

Easy access

After the launch of Chip’s easy access account paying 4.76% AER, Sidekick updated its offering for new customers and launched its High Yield Cash Reserve Issue 5, also paying 4.76% – though part of this is a one-year bonus.

Sidekick’s partner, OakNorth Bank, is a fully authorised and regulated UK bank, so your cash is covered by the Financial Services Compensation Scheme (FSCS).

Remember, though, that if you have money held with OakNorth outside of the platform, you need to consider the total – both on and off platform – when checking your money is still protected.

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There are plenty of straightforward accounts available too. Although Charter Savings Bank has withdrawn Issue 58 of its easy access account which was paying 4.59% AER, there are others offering similar rates.

Oxbury Bank’s Easy Access Limited Edition 2 account is paying 4.58% and there is no short-term bonus or restricted access you need to be aware of.

But the minimum deposit is £20,000 and you’ll earn no interest if your balance falls below.

For those with less to deposit, Chetwood Bank’s easy access account is paying 4.52% AER and there are no bonuses or access restrictions to worry about.

Of course, with each rate cut, anyone with variable savings rates are likely to see the interest they are earning come down – so make checking your account rates a priority.

Easy access cash ISAs

Considering the base rate cut, it is very interesting to see that the top easy access rates on offer have not budged over the last week.

The top two accounts are available via financial app companies Plum and MoneyBox paying 5.06% and 5.05% respectively. But as they are not banks in their own right, your money is deposited with their partner banks – CitiBank in the case of Plum and a split between Santander and HSBC if you opt for MoneyBox.

This means that your cash is protected by the Financial Services Compensation Scheme, assuming you don’t hold £85,000 with these banks already.

If you’d rather not use a financial app. Vida Savings has a Defined Access ISA Issue 1 paying 4.63% AER. This account can be opened online with a minimum of £100 – but, as the name suggests, you are restricted on the amount of penalty free withdrawals that can be made each year.

And although the latest issue of its Easy Access Cash ISA Issue 58 is paying a slightly lower rate than the previous offer that it withdrew last week, Charter Savings Bank, which is also an online account, is paying 4.56% AER that allows you to make as many withdrawals as you like.

Fixed rate bonds

Although some of the best fixed-term bond rates available have fallen a little in the last month, there are still plenty of inflation-busting accounts available.

With the base rate expected to fall again in the next few months, now could be the time to fix the rate that some of your cash is earning.

One-year

Unfortunately we have seen a few of the best paying one-year accounts being withdrawn recently. LHV, which had been topping the table with its bond paying 4.65%, was the most recent withdrawal.

Castle Trust toyed with us briefly with a one-year bond paying 4.62%, but that was withdrawn within a couple of days. This leaves a plethora of top rates paying 4.55% – Cynergy Bank, GB Bank, Tandem and the Access Bank.

Things are heading downwards, though, so act fast if you want to lock in at the current rates.

Two-year

There have been a few more accounts which have been removed from the best buy tables over the last week, including the market leader, Cynergy Bank, paying 4.53% and its short-term replacement from Castle Trust paying 4.54%.

This has left JN Bank offering the top rate, paying 4.48% AER.

Three-year

If you are looking to lock some of your cash for three years, you’ll have seen the top rates fall slightly here too – although they are still worth contemplating if you think rates will fall further. At the moment, the top rate available has fallen from 4.55% a week ago to 4.48% – that’s £7 less each year on a deposit of £10,000 – not a huge loss as of yet, but things may fall further.

Five-year

The situation is similar for five-year bonds. Once again, the top rate on offer has fallen from 4.55% a week ago to its current level of 4.48%.

JN Bank is the provider topping the two-year, three-year and five-year tables.

With the top rate of a five-year bond being the same as the two-year and three-year, this could be a good time to lock some cash up for longer, without feeling you are missing out.

Fixed rate ISAs

There’s been less disruption in the fixed rate ISA tables, but we’ve still seen some rates tumbling.

While there’s not been an improvement in the one-year table, there is a little bit of good news as OakNorth Bank has decided to join Castle Trust at the top of the table with an ISA paying 4.26% AER.

Unfortunately, this simply replaced Kent Reliance and Close Brothers which both withdrew their ISAs paying the same rate.

It’s been quiet but mixed in the one-year table. While we lost Hinckley & Rugby, paying a joint second place rate of 4.2%, Cynergy launched a new issue paying 4.19%, keeping the overall average of the top five at 4.19%.

The three and the five-year tables have seen no changes recently, leaving the top rates paying 4.20% and 4.30% respectively.

At first glance, top cash ISA rates may seem less competitive than those offered by fixed-rate bonds. But once tax is taken into account, the effective return on a taxable savings account is often lower.

Consider a one-year bond from Cynergy Bank offering 4.55%. After deducting basic rate tax of 20%, the net return drops to 3.64%. On a £20,000 deposit, that equates to £728 in interest-compared with £852 from the leading one-year cash ISA, which is tax-free.

That said, if you’re a non-taxpayer or haven’t yet used your full personal savings allowance, a taxable account could still offer better value.