Interest rates triple on some easy access savings accounts
The top six savings accounts pay an average of 1.20%, an increase from 0.67% six months ago and 0.44% a year ago, based on a £10,000 investment.
The market-leading savings account from Chase pays 1.49% gross (variable), 0.99% higher than the best account available this time last year. This is the highest rate seen on one of these accounts since October 2019.
Meanwhile the average amount paid by the top six ISAs is slightly lower, at 0.96% on average, but are still around double the rates available a year ago.
Data site Moneyfacts revealed they’ve increased from an average 0.62% six months ago and 0.42% a year ago.
The highest paying easy access ISA comes from Cynergy Bank and pays 1.05% AER, which is 0.60% higher than the best account a year ago.
Rates on other savings accounts have also increased, including the First Direct regular saver which now pays 3.5%.
Easy access accounts, which allow savers to access their money without penalty, often pay low interest rates. This is because there are no requirements for money to be locked away for a certain period, as is the case with fixed-rate accounts.
Relief for savers due to rate rises and increased competition
The Bank of England’s decision to increase the base rate, which is now 0.75% after the latest rise in March, have influenced the savings market.
It has been welcomed by savers after a prolonged period of low rates due to the ongoing economic disruption caused by the coronavirus pandemic.
But Moneyfacts revealed 83% of easy access accounts pay less than the current Bank of England base rate of 0.75% (based on a £10,000 sum).
Yet although rates are rising, no accounts currently beat the rate of inflation which was 7% for March.
It’s predicted rates could rise again in May, bringing more relief to savers. Yet while savers can benefit from higher rates of interest, for borrowers a rate rise means higher costs to pay.
Rachel Springall, finance expert at Moneyfacts, said: “The back-to-back Bank of England base rate rises have influenced savings providers to improve variable rates over the past year, but it is competition from challenger banks that dominate the top rate tables.”
Competition from other banks has also helped to push rates up. While the top six accounts are paying 0.76% more in interest than a year ago on average across all easy-access accounts rates have only increased by 0.23%.
“This shows that there are still plenty of brands out there which are not offering a competitive return.
“As has always been the case, there is no guarantee that savers will see any benefit from a base rate rise, and instead, they should be prepared to shop around to find better rates,” Springall added.
Savers struggling to put money away
The cost-of-living crisis means many people are unable to save money. This is because prices have risen on most things we buy and inflation is at a 30-year high.
Yet having some money for emergencies, such as if the boiler breaks, your car fails its MOT or you lose your job, can be critical.
Putting a little aside in an easy access account means you can take the money out when you need it, you’ll earn some interest on it, and you have a small safety net to fall back on.
Springall said: “The optimism of consumers expectations to save has waned since the start of the year, which isn’t too surprising, and is in stark contrast to the boom in consumers putting money aside during the UK lockdown.
“However, to have some easily accessible cash to fall back on could prove vital this year, so consumers can mitigate the use of short-term credit to cover unexpected costs.”