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Challenger banks become champions of high savings rates

Emma Lunn
Written By:
Emma Lunn

App-only banks and challenger brands are engaged in a rate war when it comes to both easy access savings and fixed rate bonds.

None of the names at the top of the best buy tables can be found on the high street, with lesser-known savings providers such as Tandem Bank, Recognise Bank, Secure Trust Bank and Monument offering the best rates.

The best easy access savings accounts

Tandem Bank upped the rate on its Instant Saver this week to pay 5%, the highest rate on the market. The rate is made up of a 4.65% underlying rate plus a 0.35% ‘top up’.

The move comes after the Bank of England raised the base rate to 5.25% last week, the 14th rate rise in a row.

Digital bank Tandem obtained a banking license in 2015 and bought Harrods Bank in 2018.

This week has also seen Paragon Bank up the rate on its Double Access savings account, which now pays 4.75% AER.

The Double Access account enables savers to make two withdrawals per year. On the third withdrawal, the rate drops to 1.50% AER. Savers need at least £1,000 to open the account.

Paragon Bank was set up in 1985 but only started offering savings accounts in 2014.

Secure Trust Bank and Monument both pay 4.65% on easy access savings. Secure Trust Bank has been around since 1952, but digital bank Monument only launched in 2021; neither has any branches.

In comparison to these challenger banks, high street banks are paying paltry rates on easy access savings. For example, Natwest’s Flexible Saver offers tiered interest rates up to 3.10% – but you’d need to save a minimum of £250,000 to get this rate. The lowest tier, payable on deposits up to £24,999, pays just 1.40%.

The best fixed rate bonds

The top paying fixed rate bonds are also from challenger banks and smaller brands.

SmartSave’s one-year bond pays 6.06%, with a minimum deposit of £10,000. The SmartSave brand launched in 2019 and is part of Chetwood Financial.

OakNorth Bank and Cynergy pay slightly less at 6.04% on their respective one-year bonds. OakNorth launched in 2015 and uses savings deposits to fund lending to entrepreneurs. The Bank of Cyprus UK rebranded to Cynergy at the end of 2018.

Recognise Bank offers the best rate on two-year bonds at 6.10%. Recognise Bank launched in 2020, initially providing commercial loans and mortgages to the SME business sector. It has been offering savings since 2021. It also offers a table-topping three-year bond at 6.05%.

However, there is currently no need to tie your money up for longer than one or two years to get a decent interest rate as the best three-year bonds offer lower rates than shorter-term accounts.

The next best three-year bond is from Hampshire Trust Bank (HTB) at 5.95%. HTB provides development finance, asset finance and specialist mortgages to UK SMEs, and savings accounts to businesses and individuals.