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Challenger banks buck the trend and RAISE savings rates

Joanna Faith
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Joanna Faith

Challenger banks have brought some much-needed competition back into the savings market, with various lesser-known institutions upping their rates this year.

Thanks mainly to the challengers, there have been more rate rises (67) than cuts (53) in January, the first time this has happened since September 2015.

Renault’s banking arm, RCI Bank, now offers the top easy access account on the market after increasing rates to 1.10% from 1.02%.

The bank has also raised rates on some of its fixed-term products. Its one and two year fixed have been increased to 1.31% and 1.55% and its three-year product pays 1.70%, with just Swedish Ikano Bank pipping it to first place with 1.75%.

But it’s in the five-year fixed market where competition has noticeably spiked. In December 2016, there were just four deals paying 2.00% or more, but today there are seven thanks to new rates on offer from various challengers, including Atom Bank, OakNorth Bank and Vanquis Bank.

“This could be a sign that these institutions are looking to hold cash for the longer term, which is positive news for savers looking for higher fixed returns,” said Rachel Springall of data firm Moneyfacts.

Big banks, however, have continued the rate cutting trend.

“They don’t need to attract savers’ cash to fund their lending, thanks in large part to the Term Funding Scheme,” said Springall.

“This, coupled with a low bank base rate, will mean rates are likely to stay flat or get worse for the foreseeable future.

“It would be a struggle to find a big high street bank promoting a top interest rate on their savings range right now, so savers might be better off turning to challenger banks for their salvation.”

She notes that challengers won’t be able to hold up the savings market on their own forever: “It would be great if we could see more improvement to the market overall, with more brands hopefully emerging.”