UK savings: 5% interest rate deals may not last, say experts

The UK savings market has seen a surge in interest rates, with some accounts now offering more than 5% for the first time in nearly three years. National Savings & Investments (NS&I) has increased the returns on some of its accounts, including the popular “British savings bonds” that are rebadged versions of its guaranteed growth and guaranteed income bonds. The deals are available to both new customers and those with existing accounts that are maturing.

However, experts warn that attractive deals may not last long if a provider attracts enough savings cash, leading to the product being pulled from sale. While NS&I's deals are competitive, other financial institutions are also offering high rates, albeit with higher minimum investments or restrictions on withdrawals. For instance, the top-paying one-year fixed-rate bond is now paying 5.12%, while the highest-paying five-year fixed bond offers 5.37%. Yet, to secure the very highest rates, one might need to consider less-well-known names.

NS&I's bonds offer a unique advantage for those with large sums to invest, as they allow for a maximum of £1m per person in each bond issue, with a minimum investment of £500. Unlike banks, NS&I is backed by the Treasury and guarantees 100% of your savings above the standard £120,000 limit. However, these bonds cannot be withdrawn before the end of the fixed term, which may not be ideal for everyone.

In contrast, some digital banks, such as Starling, are offering easy access to high interest rates. Starling's Easy Saver account currently boasts a 5% interest rate, with penalty-free withdrawals and up to £25,000 in balance. Marcus by Goldman Sachs has also increased its one-year fixed-rate savings account rate from 4.3% to 4.75%.