Some of the best savings accounts for the self-employed

Savers have had a notoriously tough time in recent years. Rock-bottom interest rates have made it difficult to earn a decent return on cash in the bank.

Having a savings account might seem a luxury to a self-employed person or small business. Any spare cash may often be pumped back into the company or simply used to make ends meet. Indeed, research shows one in five self-employed workers have no business savings at all and 46 per cent have less than £1,000 saved.

Best savings account for the self-employed

Some generous savings accounts for the self-employed

Currently the top-paying easy-access savings account is from Marcus, the new bank launched by Goldman Sachs, which pays interest of 1.5 per cent. The bank has reported that more than 50,000 accounts were opened within a week of it launching as income-hungry savers jumped at the chance of earning more interest.

But having a decent savings account can be particularly important to the nation’s growing army of self-employed. These workers are already missing out on the valuable pension contributions they would receive from an employer if they had one, so earning any extra interest on savings is vital.

After the Marcus account, the current top-paying savings accounts including offerings from;

  • Yorkshire Building Society, which pays 1.41 per cent.
  • Charter Savings Bank, which pays 1.4 per cent.
  • Nationwide will pay 5 per cent on balances up to £2,500 but only for 12 months. And you need to be a current account holder.
  • Tesco Bank will pay 3 per cent interest on balances up to £3,000.

Self-employed with a limited company

Self-employed workers who are running a limited company can also open a specific business savings account. But the rates paid on these are pretty paltry. The top-paying instant access account for small businesses is currently from Aldermore and pays a measly 0.85 per cent interest on balances between £1,000 and £1 million. If your balance slips below £1,000, the interest you earn is slashed to 0.05 per cent – that’s just 5p for every £100 you save.

Business-owners who are willing to tie their money up for a fixed period can earn more. Redwood Bank has a one-year business savings bond paying interest of 1.85 per cent for those with a minimum of £10,000. Meanwhile, Virgin Money has a two-year fixed rate savings account for businesses paying interest of 1.75 per cent, which has a lower minimum amount of £1,000.

The Lifetime ISA

With interest rates so low, it’s no wonder that many savers are considering alternative ways to grow their money. The Lifetime ISA may be particularly attractive to long-term savers because it offers a 25 per cent bonus from the Government.

The account, introduced in the December 2015, can be opened by those aged 18 to 39 and allows individuals to set aside up to £4,000 a year tax-free. Tax rules may change in the future so keep up-to-date on what the terms and conditions are.

The Government provides the bonus monthly, but the savings must be used towards buying your first home or retirement. Someone who opens a Lifetime ISA at age 18 and invests the full £4,000 every year until they are 50 (the maximum age you’re able to make contributions) would receive a total bonus of over £32,000.

Take-up of cash Lifetime ISAs has been fairly muted, in part because there are very few providers offering the accounts and they only pay interest of just 1 per cent. But because the money is typically used for long-term savings – after all, it takes time to save up a house deposit and retirement will still be a long way off for those eligible to open an account – take-up of investment Lifetime ISAs has been more popular. Investing the money means you have the potential to earn sizeable returns from the stock market as well as receiving the generous bonus from Government.

It’s potentially a good option as a savings account for the self-employed. Be aware of the 25% penalty charge for early withdrawals. And savings and investments can affect means tested benefits, so make sure it’s right for your financial situation.

Consider how inflation effects your savings

Savings accounts seem particularly uninspiring at present because they don’t beat inflation, currently running at 2.4 per cent. That means anyone with cash saved in the bank is losing money in real terms each year as its buying power falls as inflation pushes prices up.

As a result, investing in the stock market and into funds seems more appealing by comparison as these offer the opportunity to generate inflation-beating returns. Investing through an ISA has the added attraction that any returns you achieve are tax-free, too. But investing should be seen as a long-term form of saving.

Investing comes with the risk that the value of your money could just as easily fall as it may rise. Because you’re at the whim of the stock market you may get back less than you invested. But accessing investments through a Lifetime ISA comes with the benefit that you regardless of how your investments fare, the Government will still pay the 25 per cent bonus on the amount you have paid into the account.


Written by Holly Black – Financial Journalist

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decision. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.

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