Peak time: One-year deals have hit their highest level for almost a year
New banks are jostling to lure savers with top deals on fixed-rate bonds.
But these deals may not last long, experts claim.
Such is the competition that one-year deals have hit their highest level since before Bank of England base rate fell to 0.25 per cent nearly a year ago.
The average rate from the top five one-year bonds has jumped around a third since the start of this year to 1.79 per cent, up from just 1.35 per cent, figures from consumer website Savings Champion show.
That’s higher than the 1.61 per cent average a year ago.
There have been 114 rate rises on one-year fixed-rate bonds so far this year. This compares with just 44 for the whole of last year, research from data analyst Moneyfacts shows.
But anyone looking to renew a two-year bond maturing now will suffer, as rates are lower. The average of the top five deals two years ago was 2.27 per cent, with a top rate of 2.36 per cent.
The average is now 1.97 per cent, with the best deal at 2.05 per cent.
New, or so-called challenger banks, are keen to attract savers’ money and are paying top rates to do so.
They tend to concentrate on fixed-rate bonds, rather than easy-access accounts, as they know how long they will have your money.
And while new banks will pay you up to 1.85 per cent fixed for a year, the old, well-known ones are not competing at all. They pay as little as 0.5 per cent fixed for a year.
The good news for savers is that more new banks are waiting in the wings.
Among them is PCF Bank, which lends to those buying cars, caravans and horse boxes, as well as commercial vehicles. It will unveil its range of fixed-rate bonds by the end of the month.
And CivilisedBank plans to launch savings accounts early next year.
Banking expert Kevin Mountford, of PBF Solutions, says: ‘New banks are boosting competition. We are also seeing overseas banks setting up and competing for savers. Often, their operating costs are much lower than the larger banks, so they can afford to pay more.
‘Rates are artificially inflated right now, but we expect this to continue in the short-term.
‘Savers should make the most of this opportunity.’
Tom Adams, head of research at Savings Champion, says: ‘Challenger banks need savers’ money and, to get it, they have to be at the top of the best buy tables.
They are jostling each other for this position and upping their rates regularly. They need to pay enough to lure savers away from the well-known banks. The big banks don’t need to compete, as they get money in just because of their names.’
Top deals for one year currently come from Paragon Bank at 1.85 per cent and OakNorth Bank at 1.76 per cent, while Atom Bank, Shawbrook Bank and Harrods Bank all pay 1.75 per cent.
For two years, Paragon Bank pays 2.05 per cent; OakNorth Bank 2.01 per cent; Secure Trust Bank 2 per cent; and Shawbrook Bank 1.9 per cent.
Most new banks accept online applications only, but with Harrods Bank — which has a high minimum of £20,000 — you can also open it by post or through its branch at London’s most famous department store.
Your money is safe with these new banks, as they belong to the UK Financial Services Compensation Scheme, which gives you up to £85,000 worth of cover if the bank goes bust.