Where to save for the best returns as top rates inch up again and new banks compete for your cash
New banks are behind a flurry of rises on both easy-access accounts and fixed-rate bonds.
The renewed competition gives savers more reason to shop around for a deal. Those sticking to easy-access and short-term deals will keep their options open if rates continue to rise.
With taxable easy-access accounts, Shawbrook Bank’s Easy Access Issue 10 pays 1.2 per cent. Paragon’s new Limited Edition Easy Access 3 pays 1.15 per cent.
Adding up: Savings rates have improved in recent months
Last week, French-owned RCI Bank raised its rate from 1.1 per cent to 1.2 per cent for new and existing savers. Ulster Bank still offers its eSavings account at 1.25 per cent.
None of these come with a bonus, so you won’t have to search for a better-paying account after 12 months.
Some providers pay more than 1 per cent, but the rate drops after the first year. The Post Office’s Online Saver issue 25 rate is 1.11 per cent for new savers, but drops to 0.25 per cent after a year.
The new PCF Bank launched fixed-rate deals last week, at 1.81 per cent for a year, 1.86 per cent for 18 months and 1.95 per cent for two years. Within days, Shawbrook upped its one-year rate to a top 1.9 per cent and its two-year deal to 2.05 per cent.
Paragon and United Trust banks also pay 2.05 per cent for two years. These rates are only for those willing to open accounts online. If you do stick to the High Street, head for a local building society, rather than big banks.
Anna Bowes, director at savings champion.co.uk, says: ‘Building societies are showing greater support for customers, with higher rates and a greater commitment to treating customers fairly.
‘Big High Street names are the worst culprits for poor rates. A significant portion of money is still languishing in these uncompetitive accounts. Now is the time to switch away from them.’
The top easy-access building society rates include Yorkshire BS’s Single Access Saver, at 1.1 per cent, but you can only withdraw on one day a year. Coventry BS pays 0.85 per cent and Newcastle 0.8 per cent, far more than the 0.01 per cent paid by some big banks.
Yesterday, the Family BS launched a one-year bond at 1.56 per cent for £1,000 plus, or 1.76 per cent on £10,000 plus, available from its Epsom branch, online or by post.
Its two-year rates are 1.66 per cent and 1.86 per cent. Other top deals include Yorkshire BS’s 1.2 per cent for one year or 1.3 per cent for two years.
Patrick Connolly, adviser at Chase de Vere, says: ‘It makes sense to use new banks when they offer better rates, as long as they are covered by the compensation scheme.
‘Don’t pick a fixed-rate deal longer than two years.’
You are covered up to £85,000 by the Financial Services Compensation Scheme if a bank runs into trouble with all those highlighted, except RCI’s Freedom Account. Here, €100,000 (around £89,000) is covered under the equivalent French scheme.
Experts predict no change in base rate when the Bank of England Monetary Policy Committee meets tomorrow. When it eventually does move, it will be a slow process.
Samuel Tombs, an economist at Pantheon Macroeconomics, says: ‘Base rate is going nowhere for 18 months, due to uncertainty over Brexit.’ It forecasts a 0.25 per cent rise in spring 2019, reaching 1 per cent by the end of 2019. Capital Economics forecasts a rise next spring before reaching 0.75 per cent at the end of 2018.
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