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How to get 5% interest without tying up your savings for years

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Written by: Emma Lunn
29/09/2022
You don't have to lock your money away to get an above-average return on your savings.

Interest on savings accounts are improving following seven Bank of England base rate rises since December. Further hikes are on the cards, with economists predicting bank rate could reach 6% by next year.

The best you can get on an instant access account is 2.1% from Al Rayan Bank, according to Savings Champion data. However, as it is a Sharia-compliant bank, this is an expected profit rate.

This may be the best rate in years, but it’s still way below inflation, which stood at 9.9% in August, meaning money is losing value in real terms.

Earn 5% on your savings with NatWest or Royal Bank of Scotland

NatWest and RBS both offer a Digital Regular Saver to their respective current account customers.

The accounts pay 5% AER (variable) interest on balances up to £1,000. Balances between £1,001 and £5,000 earn 0.5% interest, while balances above £5,000 earn 0.4%.

You can pay up to £150 via a standing order or ad-hoc payments into the account each calendar month.

However, you can also set up debit card round-ups to be transferred to this account and they don’t count towards your monthly £150 limit – so it’s possible to stash away a lot more than £150 a month.

To quickly build your savings balance, use your NatWest or RBS debit card for all your everyday card purchases. The bigger the amount rounded-up, the quicker you can increase your savings balance. For example, a debit card purchase of £1.01 will be rounded up to £2, with 99p transferred to the round-up account.

One way to increase the amount you transfer to the round-up account is to split transactions where possible. For example, if you wanted to buy two items costing £1.50 and £1.20, paying for these together would cost £2.70 and 30p would be transferred to your round-up account. But if you split these transactions, the first would result in a 50p round-up and the second 80p, meaning £1.30 would be moved to your round-up account.

Earn 5% on your savings with Chase

Chase has attracted a million customers in the first year since it launched.

Chase by JPMorgan also offers 5% on round-ups – but there’s no option to add other money to the account too, as there is with NatWest and RBS.

With the Chase current account, you can choose to round-up your debit card spending to the nearest £1, where Chase will autosave the difference for you and apply 5% interest.

For example, say you made a debit card purchase for £10.60; Chase will round it up to £11 and put the 40p in your round-up account. The round-up account pays 5% AER interest on the 40p.

Chase will calculate your interest daily and pay it monthly. You can access and spend the money whenever you like – but if you leave it in the round-up account it will continue to earn 5% interest.

After a year, Chase will automatically transfer your round-up balance to your Chase current account, and you can start saving all over again.

Debit card round-ups are the only way to add money to the round-up account – you can’t move money to the account any other way.

Earn 5% in-credit interest with Nationwide Building Society

The Nationwide FlexDirect current account offers savers 5% AER (4.89% gross) in-credit interest for new customers.

It is available on up to £1,500 for the first 12 months. After 12 months, the account pays 0.25% AER (0.24% gross) variable.

It can be opened online or in branch and customers will need to pay in £1,000 per month which doesn’t include transfers from other Nationwide accounts or Visa credits.

Earn 5% with Yorkshire Building Society’s regular saver

The Yorkshire Building Society offers a regular savings account paying 5% interest, with a £500 monthly limit, but it’s not open to all.

The mutual’s Loyalty Regular Saver Issue 2/eSaver pays an interest rate of 5% AER/Gross (variable) on deposits of between £10 and £500 a month.

Based on the maximum £500 per month deposit, savers can earn £162 in interest over the year.

Interest is paid into the Loyalty Regular eSaver, on the anniversary of account opening, so if you opened your account on 14 March, interest would be paid on 13 March the following year.

On the anniversary of your account opening, your savings will be transferred to the Six Access Saver account – which currently pays 2.5% – and you will have easy access to your funds.

To be eligible to open a Loyalty Regular Saver Issue 2 you must have a savings account or mortgage with Yorkshire Building Society, and have had continuous membership of the society for at least the past 12 months.

Eligible applicants include those with Shareplans, as well as customers from its other brands – Chelsea Building Society and Norwich & Peterborough Building Society – but these customers can only open an account in branch, not online.

Fixed rate bonds

If you are happy to tie your money up for a few years, fixed rate bonds offer better interest rates than easy access savings accounts.

Savers can now access interest rates of over 4%, following the Bank of England’s decision to increase the base rate. This is the first time since May 2015 a fixed-rate savings account has offered more than 4% interest, according to data site Moneyfacts.

The best rate on a one-year bond is 4.1% AER/gross from Newcastle Building Society, according to Savings Champion. The minimum opening balance is £500 and maximum deposit £250,000.

Savers can earn 4.33% AER/gross on the best buy two-year bond from Smart Save, while the best rate on a three-year bond is 4.4% from Buckinghamshire Building Society.

The top-paying four-year deal comes at a slightly lower rate than the three-year deal, and it is from Zopa paying 4.35% AER/gross. Meanwhile, savers tying up their cash for five years can net 4.41% AER/gross, again from Smart Save.

For the latest best deals on cash savings accounts, see YourMoney.com’s The savings accounts paying the most interest which is updated monthly.

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