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As the Bank of England hikes interest rates to fight inflation, savers are finally getting a better return on their money. This follows years of rock bottom savings rates, although even today’s market-leading accounts cannot keep up with inflation.
On Monday, challenger bank United Trust Bank raised rates across its range of fixed-rate bonds again. It now pays a market-leading 2.80 percent over one year.
This rises to 3.25 percent a year for savers who can lock their money away for three years, or 3.45 percent over five years.
That five-year rate shot to the top of the Moneyfacts best buy tables, but it didn’t stay there for long. The Aldermore 5 Year Fixed Rate Account quickly bumped it off by paying 3.50 percent instead.
Anna Bowes, founder of savings rate service Savings Champion, is thrilled by this latest sign that savers rate competition is hotting up.
“Aldermore’s 3.50 percent rate is the highest that we have seen since December 2012, which is now almost 10 years ago,” she says.
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This marks a dramatic turnaround in the last 18 months, she adds. “In January 2021, the top five-year rate savings bond paid just 1.25 percent. This shows how far rates have improved since then, almost three-fold.”
The best savings rates are now being offered by the smaller challenger banks, who are competing to new win new customers.
High street giants such as Barclays, HSBC, Lloyds and NatWest are trailing badly, and rarely feature in the best buy tables.
By contrast, Monument pays 3.30 per cent a year over five years, while another lesser-known bank, Paragon, pays 3.20 per cent.
Your money is just as safe because deposits are covered by the Financial Services Compensation Scheme (FSCS).
This protects the first £85,000 if your bank goes bust, which rises to £170,000 for jointly held savings accounts.
Bowes says it is great to see Aldermore and other challenger banks launching a range of market-leading fixed rate bonds and Isas. “This will further extend the competition in the savings market that has been strong throughout 2022.”
But she says savers should consider if they are prepared to commit such a lengthy term with more savings rate rises predicted.
“There is always the concern that if you lock into a fixed-rate bond today, you might miss out on better rates tomorrow.”
It’s a tough balancing act, Bowes adds. “If you are always waiting to see if something better might come along, while leaving your cash to languish in a poorer paying account, then you will be missing out on earning that little bit more.”
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Rachel Springall, finance expert at Moneyfacts, also welcomed the multi-year high in fixed-rate bonds. “It’s positive to see, particularly as average cash savings rates fell to record lows last year.”
For those wanting to fix for a much shorter period, Brown Shipley offers a six-month fixed-rate bond paying 1.75 percent, available through savings platform Raisin.
United Trust Bank pays the equivalent of 2 percent a year in a bond that runs for nine months.
Monument pays 2.83 percent fixed for 12 months.
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