Savings rates have spiked substantially again since Easter and there are now 17 banks paying at least 5 per cent on a one-year fix in This is Money’s best buy tables.
Considering where we have spent most of the past decade-and-half that’s a real turn up for the books.
If you had asked me 18 months ago when savers would next be offered 5 per cent interest rates, I would have suggested it was unlikely to be for a long time – even if you fixed for five years.
Yet, now the best one-year fixed rates in our savings tables pay up to 5.30 per cent.
Even if rates continue to edge higher, one of these accounts might be worth taking if you have some savings that you don’t need immediate access to.
Savings rates have taken another big step up since Easter and with that comes the opportunity to fix at 5.3 per cent for a year: Is that an offer worth taking?
I have always questioned the wisdom of fixing savings for long periods, as if you are willing and able to lock up cash for five years then you should probably at least consider investing it instead.
Investment puts your capital at risk in a way that a savings account doesn’t: if your investment fall in value then you could end up with less than you put in, whereas an FSCS-protected savings account covers you up to £85,000 even if your bank goes bust.
Meanwhile, investments aren’t guaranteed to deliver good returns – and it might turn out that the stock market lags cash in any given year.
Nonetheless, reams of studies running back over a very long time have shown that over longer periods of time the stock market has delivered the best chance of a real return on your money, ie one that beats inflation.
For example, the Barclays Equity Gilt Study shows that over the 20 years to 2022 – a notably poor period for the UK stock market – shares delivered a real average annual return of 2.9 per cent, compared to cash’s -1.1 per cent.
Yet, these studies also show that the shorter the period you invest for, the greater the chance you have of losing money if markets fall.
The Barclays Equity Gilt Study 2023 shows how equities (shares) performed against gilts and cash for various holding periods. The first column shows that over a holding period of two years, equities outperformed cash in 84 out of 121 years; thus, the sample-based probability of equity outperformance is 69%. Extending the holding period to ten years, this rises to 91%.
And sometimes even if you believe firmly in the long-term case for investing, a guaranteed short-term return might be worth considering.
Which brings me back to those shorter-term fixed rate savings deals: a 5 per cent-plus guaranteed return over one year is a decent prospect.
It may be that the stock market beats thanks to share price performance and dividends over the next 12 months.
But as inflation and the knock-on effects of a dramatic round of interest rate rises around the world continue to rattle markets, you can understand why some are cautious.
That wariness among investors may mean that there are lots of bargains to be had out there in the stock market, or it may be warranted. We won’t know which one it is until this time next year.
In the meantime, if you are cautious then sticking a slice of your money in a one-year fix paying 5 per cent-plus and investing the rest may help provide some balance and reassurance.
Get ahead of the pack on best savings rates
The top savings deals now pay more than 5 per cent but best buys often don’t stick around for long.
When This is Money hears about a new best buy savings account that’s a really good deal you can be among the first to know.
Sign up to our savings alerts and get emailed the best deals as they land.
> Savings alerts: How to get the best new rates as they land
The question is, will savings rates go higher still?
There is every chance that they may do. On the day of writing this, a 5.26 per cent best one-year fix was replaced by a 5.3 per cent account.
However, as with the aftermath of the Truss / Kwarteng mini-Budget debacle, it is possible that in this inflation mini-panic, savings rates are running ahead of the Bank of England – and that we’ve seen the bulk of the rises already.
You could look at it two ways.
Firstly, even if one-year fixed rates went to 5.75 per cent from here, on £10,000 that’s only £45 more interest over 12 months than at 5.30 per cent. Maybe it’s worth potentially forsaking that opportunity and locking into a good deal now.
Alternatively, you could stick some of your one-year fixed rate saving cash in now and wait a month or so – by which time rates could have risen – and do the rest then.
Whatever you do – and even if you don’t want to fix your savings – make sure you sign up to our Savings Alerts emails, which send you the details of the top deals as they land.
A lot of the really good ones don’t stick around for long.
One-year fixed rate savings deals
Al Rayan Bank – 5.30% (1)
Smartsave Bank – 5.26%
Shawbrook Bank – 5.16%
DF Capital – 5.15%
Tandem Bank – 5.15%
> Check all the best buy fixed rates in our savings tables
(1) This rate is the ‘expected profit rate’ under Sharia compliant accounts. The bank monitors the target profit on a daily basis to ensure it is achievable.