Top one-year rate creeps up to 1.66pc

Or savers can earn 1.8pc if they are happy to rely on the German protection scheme. By Amelia Murray

Charter Savings Bank has increased the rate on its one-year bond from 1.6pc to 1.66pc, making this the top rate for an account protected by Britain’s Financial Services Compensation Scheme (FSCS). The deal nudges the 1.65pc rate from RCI Bank into second place.

The general trend in rates remains downwards. The best one-year deals paid more than 2pc at the start of the year.

Charter’s 1.66pc isn’t the very highest return available on one-year money, however – savers can obtain 1.8pc from Fidor, the UK division of a new German bank. The crucial difference is that Fidor’s accounts are not protected by the FSCS but by the German equivalent.

Charter, which launched in 2008, offers its bond online only. Savers need a minimum deposit of £1,000.

Customers can choose to have the interest paid in annually or monthly. No withdrawals are permitted until the end of the term.

Fidor customers need just £100 to open its equivalent account.

If you deposited £3,000 into the Fidor account you would earn £54 before tax. The same amount in Charter Savings Bank’s bond would return £49.80.

Fidor uses the “passporting” system to operate in other countries, which means it subscribes to the compensation scheme of its home state. The German scheme, in accordance with EU rules, protects up to €100,000, which is about £79,000 at current exchange rates. The FSCS limit is £75,000. Other banks that use the passport scheme include Ikano Bank, which is covered by the Swedish deposit insurance scheme; Agri Bank ( backed by the Maltese scheme); Triodos Bank (the Dutch scheme); and RCI Bank (the French scheme).

James Daley, the founder of Fairer Finance (see article above), has raised concerns about banks that use the passport scheme. He has previously told Telegraph Money that no one should have to base their decision on another country’s financial strength. He said: “I’d always recommend picking a bank that is protected by the FSCS.”

Neither Charter nor Fidor will roll you over into another fixed-rate bond automatically at the end of the term.

Where savings rates are heading

While Charter Savings Bank is bucking the trend by increasing its rate, returns on the whole are slipping. In January the top oneyear bond, from Union Bank of India, paid 2.15pc – almost half a percentage point less than Charter Savings Bank pays today.

Al Rayan, an Islamic bank, offered customers a more attractive 2.85pc on its three-year bond, although it pays an “estimated profit rate” in line with Islamic principles, so this rate was not guaranteed. Today, the same bond pays just 2.3pc.

At the start of the month, Punjab National Bank replaced its marketleading one-year bond, which paid 1.75pc, with a newer version that offered just 1.5pc. This week the rate was cut again, to 1.4pc.