There’s no getting around the fact that interest rates are an essential part of banking. Because of this, it’s important to understand how these rates work. Doing this will help reveal what the “best” interest rates will look like, and at which bank you can find them.
What Is A “Good” Interest Rate?
Interest rates operate in a couple of different areas of banking: your loans and your savings. What is regarded as a “good” interest rate differs between these two things.
On the one hand, interest rates are applied to loans you borrow from your bank. This is because you are charged for borrowing that money. For example, if a loan has an interest rate of 1% and you borrow £100, you’ll need to pay an extra £1 towards the loan every year.
This means that, when it comes to borrowing money, the best bank is the one that offers the lowest interest rates. This will help keep your repayment charges low. After all, no one wants to be paying way more money on what they borrowed, right?
On the other hand, there are interest rates on the money you place in a savings bank account. In this case, the best bank will be one that offers the highest interest rates. This is because a higher interest rate will make your savings grow faster over time.
Again, let’s say a savings account has an interest rate of 1% and you deposit £100, this means every financial year the bank will pay you £1 just to keep your money there. Pretty good, right?
So remember, you’ll need to look at interest rates differently depending on if you’re looking to borrow or save money.
What Bank Has The Best Interest Rates For Borrowing?
If you’re looking to borrow a personal loan, the best bank is the one that charges low-interest rates. So, what are a couple of the best-rated UK banks in this regard?
It may surprise you that M&S is consistently voted the best bank for personal loan rates. But its excellent reputation is for a very good reason.
This bank allows you to borrow a whopping £10,000 over 60 months with an annual interest rate of just 4.90%. This competitive rate is available on borrowing terms of up to seven years. This is higher than the typical five years offered by banks such as HSBC.
The only requirement is that you must have a minimum income of £10,000 a year to apply. This is bad news for the unemployed. But for employed people or students with a part-time job, this may be the account for you.
Sainsbury’s is a lot more useful than being the place you pop to get milk. In fact, its banking branch offers fantastic interest rates on personal loans.
This bank also allows you to borrow £10,000 over 60 months with an annual interest rate of 4.90%. The only snag is you must be a Nectar card member to attain this rate.
It’s normal for banks to offer higher rates for members or those who hold a current account with them. However, Sainsbury’s Bank still offers a generous interest rate of 5.4% to non-members.
What Bank Has The Best Interest Rates For Saving?
If you want to boost your savings, remember, keep your eyes peeled for a bank that offers high-interest rates!
First Direct is one of the top payers when it comes to savings. As usual, it requires you to open a current account with them first. But, as the bank offers such competitive rates on savings, it would be worthwhile to do so.
At First Direct, there is a maximum deposit of £300 a month with an interest rate of 7% a year. This maximum deposit is notably higher than most other banks offer. Its generous interest rates on savings are just the icing on the cake.
The only catch is you must put at least £25 into your account every month. However, for anyone serious about saving, this shouldn’t be a problem.
Those who sign up for a Club Lloyds account will reap the rewards of what this bank offers. This includes a maximum deposit of £400 a month and an interest rate of 6.25% a year.
There is no minimum monthly deposit, and penalty-free withdrawals are allowed. Sounds pretty good right?
Finding a bank with the best interest rates requires careful evaluation of various factors. This will involve the account type, the bank's terms and conditions, and your financial aims.
There is ultimately no one bank with the best interest rates. There is just the bank with the best interest rates for you. To find this, assess a range of banks and always make sure to always do your research first!