Martin Lewis reveals when to close your savings account and open a new one

MoneySavingExpert founder Martin Lewis said that as the cost of living is skyrocketing and inflation comes with it, it is more important than ever to have a good savings rate

Martin Lewis has revealed when to close your savings account and open a new one as he urged Britons with earnings rates below 1.5 per cent to “don’t stand for it” and switch.

The MoneySavingExpert founder said UK households have saved an extra £180billion during the pandemic.

Although the cost-of-living crisis is now eating away at households’ ability to save, Lewis said savings rates have risen to their highest level since July 2019 — more than doubling in a year.

In MoneySavingExpert’s latest email, Lewis said: “The minimum savings should be 1.5 percent – because that’s what you can get on the top account with easy access.

“If you haven’t switched savings accounts in the last few years, you’re probably only making 0.1 percent or less. Check it out now.

“Even if you opened a decent account a few months ago, given the rise in interest rates, you’re probably still making just over half what today’s top accounts are paying.”

With an easy access account, as the name suggests, you can withdraw money whenever you want – in theory.

Some come with strings attached, such as not being able to withdraw more than three times a year before losing your interest rate.

But the best easy-access account on the market, from Chase, pays 1.5 percent a year with no strings attached.

However, the account can only be opened with a smartphone.

Lewis said: “To get it, just open his free app-based checking account (you don’t have to switch banks to get it) and then just open the savings in the app.

“We raved about it, because with the current account debit card there is also 1 percent cashback for 12 months and cheap expenses abroad.”

The second best deal on the market pays 1.2 percent from a bank called Zopa, coupled with another 1.2 percent rate from Cynergy Bank.

But Lewis said that inflation threatens to eat up all savings returns, but savers should not despair.

He said: “The real picture is still bleak, as 30-year high inflation of 7 per cent means interest rates on even high-yielding savings are easily swallowed up by price increases.

“This means that raising savings rates is even more important, as it’s not about helping them grow, it’s about reducing the rapid erosion of inflation.”

If you can afford to lock up your money, fixed rate bonds pay an even higher interest rate.

If you can give up your money for a year, the best deal on the market pays 1.96 per cent from Shawbrook and PCF – but both require you to have at least £1,000 to open.

If you can lock away your money for two years, SmartSave will pay you 2.21 percent and also has a three-year option that pays 2.29 percent.

Lewis said: “As you can see, the premium for a three-year fix over two is tiny. So beware, interest rates in the UK are expected to keep rising the longer you lock yourself into a savings freeze, the longer you forego the opportunity to drop it and move money elsewhere when rates improve.

“My best guess is that one- or two-year fixes seem safer (although of course things could always turn around in these uncertain times, and if interest rates fall you might regret not holding on longer).”

Lewis added that if you have debt, including a mortgage, overpaying on that debt can outpace saving.