Savings rates improve, but don’t look to the big banks
Rate rises on savings accounts have outnumbered cuts for the first time in more than a year. However, it is the banks that many have not heard of that are offering the best deals. In January there were 67 interest rate rises and 53 cuts, according to Moneyfacts, the data firm. The last time rises outweighed cuts was in September 2015, when there were 113 rate increases to 29 cuts.
The rates on five-year bonds are also increasing. In December the top 10 deals paid an average of 1.96pc. Now the figure has reached 2.01pc.
The change is minimal – it is the difference between earning £294 and £301.50 on savings of £15,000 – but it is a step in the right direction. The rises come at a time when inflation is increasing, standing at 1.6pc in December, meaning that costs are rising for consumers.
However, savers looking for the best interest rates will not find them offered by established providers such as Lloyds, RBS and NatWest.
Not a single high street bank appears in the current top 10 rates paid on five-year bonds. The only familiar name is Tesco Bank, which provides online-only accounts. The rest of the top-paying providers are either new or less established.
The Bank of London & the Middle East currently offers 2.1pc, but it is an Islamic bank, meaning it does not pay interest – instead it gives a target profit rate that is not guaranteed.
However, it offers customers the option of withdrawing their cash penalty-free if the rate is not met.
Atom Bank, a new, mobile-only provider that pays the second highest rate of 2.05pc, began to offer savings accounts to all customers only in October last year (it previously had an invitation-only list). It also offers the highest-paying one, two and three-year bonds, which pay 1.5pc, 1.65pc and 1.75pc, respectively.
Ikano Bank, a Swedish provider owned by the founders of Ikea, entered the savings market in December 2015 and is often found in the best-buy tables. It pays 2.05pc on its five-year bond, while its three-year bond matches Atom Bank’s 1.75pc.
There are also no signs of high street Bank of London & theMiddle East Atom Bank Ikano Bank Vanquis Bank Charter Savings Bank Skipton Bldg Soc Aldermore Milestone Savings Masthaven Bank OakNorth Bank providers among the highest-paying easy-access accounts.
Renault-owned RCI Bank, which launched in June 2015, offers the top rate of 1.1pc. However, it is not protected by the Financial Services Compensation Scheme. Instead it subscribes to the French equivalent, which protects €100,000. If the bank goes bust, customers could face exchange rate issues.
By comparison, RBS’s instant saver offers just 0.01pc on balances up to £49,999. In a year, £15,000 of savings would earn just £1.50.
High street banks continue to punish savers with reducing rates.
Last week Nationwide cut the rates on its savings range by up to 0.25 percentage points. The rate on the Inheritance Isa, issue 6, was reduced from 0.75pc to 0.5pc, and the rate on its Flexclusive Isa was cut from 0.95pc to 0.75pc.
Santander and TSB made cuts this week. Santander’s latest version of its Regular E-Saver pays 2.5pc, down from 3pc. TSB reduced the rate on its Easy Saver, eSavings and two-year fixed-rate Isa by up to 0.2 percentage points.
The top rates are from unknown banks, but they are rising, writes Amelia Murray
This week the FSCS limit rose from £75,000 to £85,000 of savings per institution. If a provider goes bust, the FSCS will reimburse customers up to this amount.
Shoppers are expected to be hit by a rise in inflation, seeing supermarket prices go up