Savings rates have been in the doldrums for some time but are beginning to move upwards across the board for the first time in years.

Unfortunately, though, rates are still historically low, despite the reversal in fortune.

Why do savings rates matter?

The interest rate you get on your cash savings matters principally because of inflation. Inflation is of special concern at the moment as it is rising quickly. This means that any money you have saved that isn’t growing in value at the same as the rate of inflation will essentially be losing its purchasing power.

The Bank of England has an excellent historic inflation calculator to demonstrate this. For instance, £100 in 2010 would have to have grown to £131.13 to match the equivalent purchasing power in 2020.

All this is to say that if your wealth isn’t beating the long-term inflation average (in the case of the example above, 2.7% over 10 years) then your money is ultimately losing value.

What are the current top deals?

The top cash savings deals, while growing in value, are still very low. Data from the Bank Of England shows that rates are only really rising on long-fixed term accounts too.

The average rate on a three-year fixed savings bond, for example, has risen from 0.57% in March to 0.71% in July. But these are just averages and do not represent the best possible deals.

The current top rate easy access savings account is from Tandem Bank and will earn you 0.65% on your savings.*

When it comes to easy access Cash ISAs, the best rate on the market is even worse at 0.6% from Cynergy Bank.

At the other end of the market, if you lock your money away for five years, Atom Bank will pay you 1.84% interest on your cash. The best Cash ISA over five years is with Furness Building Society, returning just 1.25%.

What should I do with my money instead?

The reality is that cash savings rates are still extremely poor. For your day-to-day money you can get an interest-bearing account with providers such as Nationwide, who will pay 2% on deposits up to £1,500 per month. That rate drops to just 0.25% after 12 months unfortunately.

A rainy-day fund should be in an easy-access savings account. Although this won’t keep up with inflation, it should only be a limited pot of cash anyway. The general rule of thumb is to keep 3-6 months’ worth of expenses in cash.

Over and above this, any money you have set aside could be working harder elsewhere. Think investing in the stock market, either through a stocks and shares ISA or a pension.

If you would like to discuss your options, don’t hesitate to get in touch with your adviser.

*Please note all rates quoted in the article were correct at the time of writing but are subject to change.