Signs of ‘slight green shoots’ amid savings gloom as challenger banks launch new best buy fixed-rates
- Savings rates on all accounts have collapsed since March due to coronavirus
- Over the last few weeks some banks have upped their fixed-rates
- Experts say these ‘baby steps’ suggest a ‘slight revival’ in fixed-rate bonds
Savers have been handed a small dose of good news as smaller challenger banks have raised the rates they pay on fixed-term deposits over the last few weeks.
Sharia bank QIB UK launched best buy one and two-year fixed-rate bonds paying 1.2 per cent and 1.4 per cent respectively, while United Trust Bank has increased rates on a range of fixed-rate bonds since late July.
It now offers the best 18-month deposit, paying 1.15 per cent.
Signs of life in the savings market? New best buy fixed-rate deals have recently been launched
Experts said there were signs of a ‘slight revival’ in fixed-rate bond offerings after savings rates collapsed to record lows this year thanks to the coronavirus crisis.
Easy-access savings rates have stabilised over the last few weeks, although remain at record lows, with National Savings & Investments propping up the best buy tables with its Income Bonds paying 1.15 per cent and its Direct Saver paying 1 per cent.
But while those rates have remained flat, challenger banks competing for money from savers have recently begun to drive up rates on shorter length fixed-term deposits. Prior to this, savings rates had only been in heading one direction.
In January the average one-year fixed-rate bond paid 1.2 per cent, but by mid-July this had fallen to 0.7 per cent, according to Moneyfacts, with no bank paying 1 per cent on a 12-month fixed-rate.
And average rates on fixed-term deposits of 18 months or longer plummeted from 1.48 per cent to 0.92 per cent over the same period.
|Average one-year fixed-rate bond
|Average longer-term fixed-rate bond
|Source: Moneyfacts (rates correct as of 14 July 2020)
‘There have been some encouraging signs of competition over the last couple of weeks’, Anna Bowes, co-founder of analyst Savings Champion, said.
QIB UK’s accounts pay an expect profit rate rather than interest, meaning returns could potentially be lower than expected, although usually savers receive the headline rate.
They can be opened through savings platform Raisin with £1,000 and deposits are covered by the Financial Services Compensation Scheme up to £85,000.
Newcomers to Raisin who open their first account with a deposit of £5,000 before next Monday will also receive a bonus of £10, increasing the rate paid on the one-year fixed-rate to 1.4 per cent and to 1.51 per cent on the two-year.
Deposits at United Trust Bank meanwhile can be opened with £5,000.
Its one-year fixed-rate pays 1.1 per cent and its two-year 1.2 per cent, good enough for second place in This is Money’s best buy tables.
It has steadily increased these rates since 22 July, when it launched its one-year bond at 0.85 per cent and its two-year fixed-rate paid 1.05 per cent.
It leapfrogged Charter Savings Bank a week later after it launched a one-year fixed-rate of its own paying a then-best buy rate of 0.91 per cent on balances of £5,000.
Bowes added: ‘We haven’t seen any little battles like this for a while, so while it’s baby steps, it’s still good news and we can but hope that these sparks ignite into sustained and significant levels of competition’.
Kevin Mountford, chief executive of Raisin UK, warned top deals like these won’t be around for a long time as ‘banks will only raise what they need’, but said there had been some ‘slight green shoots of recovery’ when it came to fixed-rate bonds.
He said: ‘Some banks are starting to see a rise in demand for borrowing to support growth’, meaning smaller banks needed to raise more money from savers.
‘We have to hope any increase in lending continues, but there are some positive signs for savers’, he said.
While savers should not consider fixing for any longer than two years, two one-year fixed-rates paying more than 1 per cent and a two-year fixed-rate offering 1.4 per cent might lead some to consider tying their money up to hedge against easy-access rates falling further.
That is almost certain to happen if NS&I, which has taken in billions of pounds from savers since March, announces it is going to cut its best buy rates.
Anna Bowes said although it was close to impossible to know what would happen next with savings rates, she recommended savers diversify their money, with some in a fixed-rate bond for certainty and the rest in an easy-access account, allowing them to take advantage if rates continued to improve.
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