Savers’ re­lief as more ac­counts raise rates

The Daily Telegraph - Your Money - - YOUR MONEY - Go­ing down:

Don’t cel­e­brate just yet, but sav­ings rates are fi­nally ris­ing. Amelia Mur­ray looks at whether the tide has truly turned

Savers are see­ing the first signs of a turn­around in the rates paid on their cash as a record pro­por­tion of new ac­counts are of­fer­ing higher rates. While in­ter­est rates on the whole for savers are still fall­ing – see graph – a num­ber of small providers are boost­ing com­pe­ti­tion.

In the first 11 days of this year, there were 27 in­ter­est rate rises on new is­sues of ex­ist­ing ac­counts. This com­pared to just 15 ac­counts that had cut.

This is the first time that rate in­creases have out­num­bered cuts since 2015, ac­cord­ing to Money­facts, the sav­ings ad­vice site. This time last year, there were just 17 rate rises com­pared to 256 de­creases.

How­ever, savers should not just as­sume that their cur­rent sav­ings rates will im­prove, es­pe­cially if they are with one of the big banks.

Com­pe­ti­tion is in­tense among the high­est-pay­ing ac­counts, with providers jostling to be top of the best-buy ta­bles.

Last week, The Post Of­fice in­creased the rate on its easy-ac­cess On­line Saver ac­count to 1.01pc.

This made it the mar­ket leader, af­ter mov­ing ahead of ac­counts from Na­tional Sav­ings & In­vest­ments, Tesco Bank and Leeds Build­ing So­ci­ety, which all of­fer 1pc.

RCI Bank then in­creased the rate of its Free­dom Sav­ings ac­count to 1.02pc.

This week, lit­tle-known providers The Not­ting­ham and The Han­ley Eco­nomic build­ing so­ci­eties raised rates. The Not­ting­ham in­creased the in­ter­est rate of its eSaver to 1.02pc and The Han­ley launched a new ver­sion of its monthly in­come saver that pays 1.05pc.

Cus­tomers of The Han­ley must have at least £25,000 to save.

While the rates of­fered by lead­ing ac­counts are im­prov­ing, the dif­fer­ence be­tween the best rates is min­i­mal.

For ex­am­ple, £25,000 saved in NS&I’s easy-ac­cess ac­count earn­ing 1pc would earn £250 in a year com­pared to £262.50 with The Han­ley’s top ac­count.

‘Any in­crease in sav­ings in­ter­est at the mo­ment is worth chas­ing

No­tice ac­counts, which lock-up money for a pe­riod and pay higher rates, have also been in a price tus­sle.

Se­cure Trust’s 90-day ac­count rose to 1.31pc, match­ing Char­ter Sav­ings Bank’s 95-day ac­count, while Swedish provider Ikano Bank has in­creased the rate of its three and four-year fixe­drate bonds to 1.75pc and 1.95pc.

The mar­ket has not seen a four-year deal pay 1.95pc or more since Au­gust last year, when Van­quis Bank of­fered 2pc, ac­cord­ing to Money­facts.

Atom Bank, the mo­bile-only bank, has also hiked rates. Its three-year ac­count now pays 1.7pc, and five-year bond pays 2.05pc. Av­er­age sav­ings rates have been fol­low­ing a down­ward trend since 2012, ac­cord­ing to Bank of Eng­land data.

The av­er­age easy-ac­cess ac­count paid 1.55pc when rates peaked in Fe­bru­ary 2012. In De­cem­ber 2016, this dropped to 0.15pc.

That’s the dif­fer­ence be­tween earn­ing £387.50 on sav­ings of £5,000 a year – and £37.50.

How­ever, while some providers are rais­ing rates, many more ac­counts are still pay­ing lower in­ter­est, said Anna Bowes from Sav­ings Cham­pion.

Ms Bowes said: “Six months ago, just 10 vari­able-rate ac­counts were pay­ing 0.01pc. Now there are 33 ac­counts pay­ing this pal­try rate.

“This will soon rise to 35 as HSBC is cut­ting from Jan­uary 25.”

What’s more, nearly 20pc of all easy-ac­cess ac­counts are pay­ing 0.05pc or less. An ac­count pay­ing this rate would yield just £12.50 in a year based on sav­ings of £25,000.

De­spite the neg­a­tive trend, Ms Bowes is hope­ful that the “small im­prove­ments” seen at the top of the ta­bles could lead to a “sus­tained bat­tle” that will push rates up fur­ther across the board.

She said: “Any in­crease in sav­ings in­ter­est in the cur­rent en­vi­ron­ment is worth chas­ing, es­pe­cially if you are stuck in one of the worst pay­ing ac­counts out there at just 0.05pc or even less.”

Easy-ac­cess ac­count:

The Han­ley Eco­nomic Build­ing So­ci­ety, 1.05pc. Down­side: min­i­mum bal­ance £25,000.

One-year bond:

Atom Bank and Ikano Bank, 1.4pc. Down­side: the Atom Bank ac­count is mo­bile-only and Ikano Bank does not sub­scribe to the UK’s Fi­nan­cial Ser­vices Com­pen­sa­tion Scheme, which cov­ers sav­ings up to £75,000. In­stead it sub­scribes to the Swedish equiv­a­lent and pro­tects the same bal­ance, but it may take longer to re­claim money.

Two-year bond:

Atom Bank, 1.6pc

Three-year bond: Vari­able cash Isa:

Ikano Bank, 1.75pc

NS&I and Pen­rith Build­ing So­ci­ety, 1pc. Down­side: both providers only ac­cept new Isa sub­scrip­tions – nei­ther al­lows trans­fers. These Isas are also not “flex­i­ble”, mean­ing savers can­not make with­drawals and re­place funds in the same tax year, with­out it af­fect­ing the an­nual £15,240 al­lowance.

One-year fixed Isa:

Al Rayan Bank, 1.09pc. Down­side: This is an “tar­get profit rate” and is not guar­an­teed. How­ever, if the rate is not achieved, cus­tomers can re­deem their money early with no penalty and will still re­ceive the quoted in­ter­est for the du­ra­tion of their in­vest­ment. Al­ter­na­tively, Bank of Cyprus UK, 1.05pc. If this ac­count is ac­cessed early a penalty charge equiv­a­lent to 180 days’ in­ter­est will be levied.

Two-year fixed Isa:

Al­der­more Bank, 1.2pc. Down­side: Ac­cess is per­mit­ted, sub­ject to los­ing 180 days’ in­ter­est.

Three-year fixed Isa:

Vir­gin Money, Al­der­more Bank, Paragon Bank, 1.25pc. Down­side: Vir­gin Money cus­tomers will need to sac­ri­fice 120 days’ in­ter­est if they need to make early with­drawals. For the Al­der­more Bank ac­count there is a huge loss of 270 days’ in­ter­est if ac­cess­ing funds early.

Cen­tral bank poli­cies have crushed savers’ re­turns

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.