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The rate of fixed rate savings deals is going up again – and at a rapid pace.
A series of lesser-known challenger banks have started the upward movement, with a wave of best buys hitting the market.
Yesterday, Al Rayan Bank launched a market-leading one-year fix that pays 4.31 percent, a new best buy two-year fix that pays 4.45 percent, and a new best buy three-year deal that pays 4.57 percent.
Back on the move: Since December, average one-year interest rates have remained broadly flat. There has been some upward movement in recent weeks
This follows Ahli United Bank, which launched a 4.25 percent rate last week through the savings platform Raisin UK.* Earlier this week, Allica Bank and Vanquis Bank raised their one-year interest rates to 4.25 percent, while IsBank raised its one-year deal to 4.25 percent yesterday.
Vanquis Bank also launched a two-year fix with a payout of 4.35 percent and a three-year fix with a payout of 4.4 percent.
Until recently, available rates on the best one-year fixed rate products have been falling since their peak in early November 2022.
– View the best savings deals for fixed rates here
In the three months between the beginning of November 2022 and February 2023, the best one-year interest rate fell from a high of 4.65 percent to 4.16 percent.
Since December last year, the average one-year interest rate has remained almost the same, while long-term fixed-term contracts have fallen on average.
Between December 1, 2022 and February 13 of this year, average one-year interest rates have only increased from 1.51 percent to 1.61 percent, according to Moneyfacts.
In the past week alone, the average rate has risen from 3.61 percent to 3.68 percent.
Why are savings rates rising?
As the Bank of England raised its base rate from 3 percent to 3.5 percent in December and then from 3.5 percent to 4 percent at the start of this month, savers may have been surprised to find that fixed-rate savings deals have fallen in generosity in the past months.
This was largely due to two declining factors.
The first was the long-term swap rate, which affects the price of fixed-income bonds.
The second is market expectations of where base rates will peak, which usually shows where markets think interest rates will go over the longer term.
However, swap rates have risen slightly in recent weeks, encouraging some banks to increase some of their fixed-rate savings deals.
The Bank of England is also expected to raise its base rate to 4.25 percent when it meets again next month, which could mean further increases in savings bonds.
A spokesman for financial experts The Savings Guru said: ‘Swap rates have risen, so this makes one-year fixes more attractive to banks that want money right now.
“Moreover, longer-term swap rates are lower than one-year swap rates, so this means that one-year swap rates appear to be the most attractive of the fixed maturities for banks.”
According to The Savings Guru, competition is also constantly increasing, driving up savings interest rates even further.
While savers may be tempted to hold out in the hopes of better interest rates, the advice is that this is probably fine for now — at least for one-year fixes.
According to The Savings Guru, this uptick in savings rates is more likely to be short-lived than a sign that fixed rates are heading back to the peak of last November.
The savings experts added that one-year fixed-rate bonds should reach a high of 4.25 percent the foreign provider that goes above and beyond.
Should you sign up for new top savings offers?
Some depositors may be concerned about putting their money in a lesser-known bank that they may not have heard of.
However, they should take comfort in the fact that Al Rayan Bank, Ahli United Bank, Vanquis Bank and Allica Bank are all protected by the Financial Services Compensation Scheme.
This means consumer deposits are essentially insured up to £85,000 per person, or £170,000 in the case of joint accounts.
This is the same level as any fully authorized and regulated UK bank, and means depositors’ money is protected in the worst-case scenario and one of these providers were to go out of business.
Instead of paying interest to depositors, Al Rayan Bank – as an Islamic bank – invests customers’ deposits in ethical, sharia-compliant activities to generate profits.
Such profit rates provide an expected return that complies with Sharia rather than interest, as with standard accounts. Since the bank’s inception in 2004, it has always paid its customers at least the rate of profit it quoted.
Both Ahli United Bank and Is Bank offer their rates through the savings platform, Raisin UK.*
Raisin UK allows savers to sign up in one place and manage accounts at different banks. It means they can exchange money between providers and get the best rates with less administration.
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