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Best Savings Rates on the Market

With the Bank of England slashing interest rates, savers are being squeezed more than ever. We seek out the few accounts available which are paying a positive interest rate

Emma Wall 5 September, 2016 | 4:20PM

This article is part of Morningstar’s Back to School Guide to Investing. Join us every day this week to set yourself on the right path to investment success.

Savers face fresh challenges in the search for a decent rate of income as high street banks pass on the Bank of England rate cut straight to their customers. When Bank Governor Mark Carney announced the Monetary Policy Committee had voted for a cut in the Bank’s base rate to 0.25% from 0.5% he insisted that banks pass on the cut to customers. Carney may have been talking about borrowers benefitting from cheaper loans, but the reality is savers will end up penalised.

The MPC is widely expected to cut rates further next week following its September meeting, from 0.25% to 0.1%. Many banks have already slashed their savings rates in anticipation, with the latest cuts announced from Natwest and Royal Bank of Scotland. The Natwest Instant Saver is dropping from its rate of interest 0.25% to 0.01% with effect from October 31, and Natwest’s Cash ISA will halve its rate of interest from 1% to 0.5% on the same date. RBS, which owns Natwest, offers similarly named accounts and is dropping its rates in line.

“Many of the providers have cut their saving rates,” said Anna Bowes director at SavingsChampion.co.uk. “NatWest is cutting 0.25% to 0.01% later on this year. It is just going to be continuously devastating for savers who have been suffering for years.”

Why Cash is Important

While the returns on cash are poor – especially given the outlook for inflation – cash is an essential building block of any investment portfolio. Cash offers investors liquidity, easily accessed in an emergency and quick to deploy should a compelling investment arise. Why put in considerable work maximising the returns from all other portfolio constituents and ignore your cash holding?

If you look scrutinise your stock, bond and fund holdings then you should do the same for your cash allocation. Make sure your savings are working hard for you; the choice is diminished but there are options available.

First off, maximise your ISA allowance. While cash is paying such low rates of interest, you want to make sure all of that income is going to you rather than the taxman. The best-paying easy access ISA on the market at the moment is an online offering from Virgin Money paying 1.05%. This rate is matched by an online account from the AA.

If you are willing to lock away your cash in a fixed-term cash bond you can be rewarded for your patience, with the best rate provided by Skipton Building Society – 1.6% for five years. Over three years, the best rate is provided by Aldermore at 1.4%. If you can only spare your cash for one year, the best one-year rate is also from Aldermore at 1.2%.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk