Should I tie up my parents’ savings?

I am looking for a savings bond for my parents. They have quite a bit of cash sitting around, earning next to nothing. What options do I have and how long should I lock the cash away for? TL, VIA EMAIL

While savings rates are still generally low, there are some competitive accounts available from smaller banks.

In general, the longer you are happy to lock away your cash for, the more interest you will earn. However, you should consider whether your parents will need access to their money before tying it up for the longer term.

Anna Bowes, of the savings comparison service Savings Champion, said few of the top deals on the market today were from household names.

The best easy-access rate is currently 1.32pc from Bank of Cyprus UK, while the top one-year fixed rate is Atom Bank’s 1.95pc. However, accounts with Atom Bank must be opened and managed through a smartphone app, so they are not suitable for all.

Over three years, the best rate is 2.31pc with French-owned RCI Bank. If you are comfortable locking savings away for even longer, Vanquis Bank pays 2.7pc on its five-year bond.

Ms Bowes said that while these providers were not major brands, each was backed by a deposit protection scheme. This means your savings would be safe in the event of a bank failure.

“You may not have heard of any of these providers, as they are lesser-known ‘challenger’ banks, but all of them belong to a protection scheme,” she said. “This means up to £85,000 (€100,000 in the case of RCI Bank as it uses the French deposit protection scheme) is protected in the worst-case scenario of the bank going bust.”

How long you choose to tie your parents’ savings up for depends on their personal circumstances. If your parents are reasonably young and in good health they may not need access, so a long-term bond could work well. However, if you feel they may need access to their cash sooner, it may not be wise to lock it away, as most fixed-term accounts will not let you withdraw your money before the term ends.

Also worth considering are future increases in Bank Rate, which could push up savings rates

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across the market. “The risk in locking into a longer-term bond is that if best-buy rates increase, the rate you are earning will not,” Ms Bowes added. “However, while you wait for better rates to come along, you are missing out on the higher interest that you could be earning in the meantime.”

One possible solution is to split your cash across accounts with different terms. While this would involve some extra work, it would

Basic-rate taxpayers can earn £1,000 in interest without being taxed

allow you to take advantage of the best rates available now and to review the situation over the next few years as the accounts mature.