Interest rates on easy access savings accounts are starting to increase thanks to new accounts from Marcus by Goldman Sachs and the Savings Builder by RBS.
It says a lot about how poor the savings market has been recently that people are excited about accounts offering 1.5% in interest. Here’s a little about the two options, and whether these are really your best bet.
Marcus savings account by Goldman Sachs
This is a new digital bank, but it’s no tiny start-up – Marcus is run by Goldman Sachs (who played a big part in the 2008 financial crisis). This new account has been incredibly popular with reports that 50,000 people opened an account in the first week.
You can earn 1.5% on savings up to £250,000 in it’s Online Savings Account. It’s a flexible account so you can take money out at any time. That 1.5% includes a 0.15% bonus for the first year, and it’s not a fixed rate so it could change, up or down, at any time.
You can only open this account online.
Savings Builder by RBS
You can only get this Savings Builder account if you have a current account with RBS. If you do you’ll get the full 1.5% on up to £10,000 in savings. Over this you only get 0.2% interest.
You also have to pay in at least £50 every month, which means if put in the full £10k upon opening you’re getting very little back on this regular deposit.
The alternatives
Regular readers will know I’m an advocate of putting any money you need access to in high street banks. You can get up to 5% in interest. Great! That knocks 1.5% out of the park.
But there are restrictions to these accounts. You might need to pay in a certain amount of cash every month, though this can then be moved out again or used to pay your bills etc. You might also be required to have some active Direct Debits. But both of these are all manageable for most.
The biggest issue is the limit placed on how much you can save in these accounts. Here’s what you get from the best available at the moment.
- Nationwide Flex Direct – 5% for one year (max £2,500)
- TSB Classic – 5% (max £1,500)
- First Direct Regular Saver – 5% (max £300 a month for one year)
- Tesco – 3% (max £3,000)
- Chip – 3% to 5% (max £400 a month)
For lots of people these levels are going to be fine, and you can increase your allowance by having an account with more than one bank. Tesco even allows you to have two accounts. So there’s the potential to save £13,600 a year from these four options. Couples can add more having one account each and a joint account on top.
Why would you want a Marcus or RBS account?
The main answer here is they are a good option for people who have A LOT of money saved up but want access to it. But there’s also an appeal for people who don’t want to deal with multiple current accounts or only need to save the money for a short period before it’s going to be spent – a wedding or house purchase for example.
Now, if you don’t need to touch it for a long time you might be better off in a one or two year fix, or investing the money. Under 40s could look at Lifetime ISAs so they can get a 25% bonus. But if you’re worried about the risk associated with investments, then these two accounts do give you some more surety.
Due to the lower savings limit of £10,000, I think the RBS account is only worth considering if you already have a bank account with them and you want to gradually move money across to higher paying accounts, such as a 5% regular saver or the smart Chip savings app.
The Marcus savings account is more interesting as you can put in huge amounts straight away. Even so, I’d try to maximise your use of the current account alternatives first.
One thing to consider is the Personal Savings Allowance (PSA). This means you can earn £1,000 in interest each year without paying tax on it if you are a basic rate (20%) taxpayer. You’ll need around £65,000 saved to burst through this allowance. In that case a tax-free ISA might become more appealing. The PSA goes down to £500 if you are the next level up and pay 40% on some of your earnings.
You’re still losing money
Any rate of interest that’s below the rate of inflation is losing you money. Read more about savings that beat inflation here and then more information on how to get up to 5% interest with Chip.
Gosh these interest rates are so low! To be fair to those who are lazy when it comes to switching to a better return – it’s hardly worth the effort for a few basis points. I’d strongly recommend getting into equities if you find you have a lot of cash on hand to invest
Surprised no mention of P2P lending. I appreciate it isn’t FSCS protected and technically therefore not savings. But the three largest platforms have provided returns of 5% plus for over a decade. Seems strange not to even mention similar alternatives.