Amid the cost of living crisis, savers have been among the only ones who have got anything positive out of it, as rates teeter at around their highest levels in more than a decade.
Consumers can get close to 5% for those willing to put their money away for up to two years – but even easy-access accounts are many times better than they were in 2021.
“We’ve seen rates raised to the highest levels that I have seen in 11 years. It really is an extraordinary time,” says Anna Bowes, co-founder of website Savings Champion.
So, as inflation continues to bite, how can consumers make the most of their money?
Find the top rates
In order to counter rising inflation – which stayed in double figures in March as food and drink prices spiralled – the Bank of England has repeatedly increased the base rate. It is expected that there will be one more interest rate rise, to 4.5%, next month.
As a result, many banks – but not all – have been raising their savings rates. And those that have not are coming under increasing pressure to do so. Figures from financial data provider Moneyfacts show a drastic difference in rates over the last two years.
In April 2021, the best deal on an easy-access account – from Virgin Money – gave customers just 0.5%. Last week, one of the highest rates on offer was 3.6% from Yorkshire building society.
Two years ago, the best rate from a notice account was a paltry 0.65% from Moneycorp Bank. Now, the highest-paying provider is Oxbury Bank, at 4.05%, provided you accept the 180-day notice period.
Fixed-rate bond returns have also gone up. At this time in 2021, one-year bonds offered up to 0.62% (from Atom Bank), but savers can now get 4.6% from Investec Bank.
For two-year bonds, the best rate on offer has gone from 0.8% from BLME to 4.7% from Investec last week. Meanwhile, the three-year bond best-buy was Al Rayan Bank’s 4.68%, with Atom Bank at 4.65% (a four-year product).
Monitor the market
That is not to say that all savers will benefit from the rises – far from it. Some high street accounts remain stuck in the doldrums. Virgin Money’s Everyday Saver account pays just 0.25%, for example.
Banks that have not put up their rates fast enough have come in for severe criticism, especially as they make billions in profits by refusing to do so. The Financial Conduct Authority (FCA) has said it is closely monitoring how rates are passed on, and that its upcoming “consumer duty,” in effect from the end of July, will mark a change in how firms operate.
In a letter to the Commons Treasury select committee last week, FCA chief executive Nikhil Rathi said: “We have challenged and sought further information from some outlier firms that had made relatively small increases to their variable rate savings products in 2022, and where we saw a material time lag in pass-through to savings products relative to mortgages.”
For consumers, the key is to monitor the market and switch when possible. Rachel Springall at Moneyfacts says demand from consumers may affect the shelf-life of some of the best deals.
“There may well be a dividing sentiment among consumers and providers as to whether interest rates are destined to reduce in the months to come. It will be interesting to see how the top-rate deals fluctuate, and how demand impacts the shelf-life of the best deals over the next quarter,” she says.
For those looking for a better return, there are some good current account signing-on deals. Moneyfacts spotlights HSBC’s Advance and Premier bank accounts, where new customers receive £200 cashback once they have credited £1,500 or more within 60 days. The Premier account gives you access to a rate of 2.5% on your savings.
Choose an Isa on the up
With the new tax year has come a flurry of activity in the cash Isa market, with interest rates again far above what they were two years ago.
At the time of writing, Yorkshire building society was offering 3.35% on an easy-access Isa, while Marsden building society was offering 4% on a notice (180 days) account. Gatehouse Bank was paying 4.2% on a one-year fixed-rate, while Paragon Bank was offering 4.28% on a two-year product. Meanwhile, Virgin Money was offering 4.26% on a three-year product.
Springall says these attractive rates may appeal to both new customers and those looking to transfer their existing savings to a new product.
But move fast … it may not last
Consumers were advised earlier this year to take advantage of the good rates while they were on offer as improvements were signalled in the economy.
But indications are that there will be one more base rate increase next month before they are held steady by the Bank of England.
Some suggestion of how the financial markets think interest rates will move can be seen by looking at trends in the bond market, says Bowes.
“Fixed-term products tend to be priced on what the market expects to happen. Three years, four years and five years … all the top rates are paying less than the two-year rate, so that is the time the market thinks rates will dip slightly in the long term.”
Springall says the most attractive rates may only be around for short periods. “Savers may need to act quickly to grab a top rate, particularly if it’s offered by a challenger bank that reaches its funding targets.”
