Barclays has launched a new Instant Access Savings Account, offering a market-leading rate of up to 5.12% AER. But that comes with tricky terms.
The Rainy Day Saver account is only available to Barclays current account holders who are enrolled in its Blue Rewards programme. Additionally, the maximum rate of 5.12% AER only applies to balances up to £5,000; anything above that earns 0.15% AER.
Barclays is not the only savings provider to have raised interest rates recently. After several base rate hikes, savers’ deposits offer a cheaper source of bank lending than the Bank of England, so many providers are looking to attract new savers with higher rates.
Here, which one? takes a look at what the Barclays Rainy Day Saver offers and how it compares to other top savings accounts.
Who can get the Barclays Rainy Day Saver?
As mentioned, you will need to be a Barclays current account customer and also registered with Blue Rewards in order to access the Rainy Day Saver account.
Barclays Blue Rewards is an optional current account add-on, which costs £5 per month. However, you can waive this charge if you pay two or more direct debits from the account, and up to £9 plus cashback for holding other Barclays financial products, such as a mortgage, home insurance and life insurance.
You’ll also have access to two savings accounts: the Blue Rewards Saver, which pays 1.26% AER every month you don’t make any withdrawals, and the new Rainy Day Saver.
You must pay at least £800 per month to remain eligible for these rewards.
As the Rainy Day Saver can be opened from just £1, it may be suitable for those with less money to save. If you have a larger savings pot, it’s still not worth saving more than £5,000 in this account, as you can easily beat the 0.15% paid on larger balances elsewhere.
If you save £5,000 for a year (assuming the interest rate doesn’t change and you don’t make any withdrawals), you’ll earn just over £250 in interest. Whether it’s worth making sure you meet the other Blue Rewards criteria is up to you, especially if the rewards you earn don’t exceed the £5 monthly fee.
What are the best savings rates?
This table shows the highest rates for fixed term and unrestricted instant access savings accounts, ranked by term.
Source: Money Facts. Correct as of October 7, 2022, but rates are subject to change. *Al Rayan Bank accounts are Sharia compliant and therefore pay an Expected Profit Rate (EPR) as opposed to an Annual Equivalent Rate (AER).
As you can see, the Barclays Rainy Day Saver offers a much higher interest rate than even the highest rate five-year fixed term account. But it’s important to note that these accounts will pay a higher rate on much larger balances.
These accounts are also unrestricted, meaning you don’t need to be tied to a particular checking account to access them. However, many of them require much higher minimum initial deposits; can only be opened with £1, and the majority require at least £5,000.
- Learn more: how to find the best savings account
Will savings rates continue to rise?
when we analyzed savings rates on September 13 before the September 14 monthly inflation figures, the highest rates were about 1% lower than they are today.
These increases are largely linked to the increase in the Bank of England’s base rate, which is now 2.5% – the highest since December 2008. Experts predict it could rise further as the Bank continues to battle soaring inflation and deal with the fallout from the government’s mini-budget, which has seen the pound fall to historic lows. One estimate suggests rates could hit 6% next year.
So what does this mean for savings? While it’s not always true that interest on savings is rising at the same rate as the base rate, there’s no sign that interest rates on savings are going to stop rising anytime soon.
This puts savers in a delicate situation. Despite rising rates, no account can currently match or beat the current rate of inflation, which means everyone’s money is losing value in real terms (i.e. it’s cannot buy as much as before). However, in order to get the highest rates, you need to commit to a long-term fixed rate account, which could cause you to lose out on future rate increases.
The Barclays Rainy Day account has an option. But there are others to consider:
The “separate and save” strategy
An alternative for savers who wish to save their money at a fixed rate while taking advantage of rising rates is what we have dubbed the “split and save” strategy. This involves dividing your savings between several term accounts with different maturities.
For example, a sum of £10,000 could be divided into five tranches of £2,000 and invested in a fixed term savings account of one, two, three, four and five years. After 12 months, the money saved in the one-year account would mature, in which case you can then transfer it to a five-year fixed term account. The following year, you can do the same with the two-year account. Eventually, you will have five outstanding five-year fixed-term accounts, each maturing each year.
This means some of your money can benefit if rates continue to rise in future years, and also means you can access some of your savings when they come due, should you need them. , rather than having to pay early access penalties.
- Learn more: best savings accounts to open with £1 or more
Current accounts with high interest rates
It is also possible to make your money grow by using a checking account that offers high interest rates.
Nationwide, for example, currently offers the highest interest rate for its FlexDirect current account holders. It pays 5% AER on balances up to £1,500 in the first year (0.25% thereafter). It requires a minimum of £1,000 to be paid each month – you can achieve this by having your salary paid into this account if you earn at least £12,000 a year after tax and other deductions.
Elsewhere, the Virgin Money M Plus current account has no restrictions on how much to pay each month, and it offers AER interest of 2.02% on balances up to £1,000.
- Learn more: Best High Interest Bank Accounts