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Some good news for savers as signs of a rate war emerge

Joanna Faith
Written By:
Joanna Faith

It’s been a long time coming, but finally there’s a glimmer of hope for embattled savers in the form of a potential new rate war. Just don’t get overexcited.

According to rate monitor Savings Champion, a third of new issues of savings accounts launched so far this year have come with rate rises rather than cuts, reversing the trend seen over the past 12 months.

At the beginning of the year, the Post Office launched Online Saver Issue 23 which pays 1.01% AER, up from 1%. RCI immediately reacted by increasing its Freedom Savings Account to 1.01%.

Hanley Economic launched its easy access Monthly Income Saver paying 1.05% on a minimum balance of £25,000.

Nottingham Building Society increased the rate on its eSaver Issue 6 from 1% to 1.02%, which in turn saw RCI make a second increase this month hiking the rate on its Freedom account to 1.02%.

Anna Bowes, director of Savings Champion, said this could be the first hint of a rate war in the offing.

“It is very encouraging because while the challenger banks have brought out increased rates over the years to entice savers away from the big banks, this feels a bit different.

“While these are just small improvements at this stage, hopefully this could lead to a bit more of a sustained battle.”

Elsewhere, the ISA market has also seen a small boost for the second month running, according to data firm Moneyfacts, the first time a consecutive increase has occurred since 2015.

The average long-term fixed ISA rate has risen to 1.00%, up from 0.99% in December and 0.98% in November. But it’s still some way off 1.88% seen in January 2016.

“The start of the year is the time providers start to look ahead to the ISA season, preparing their offerings in advance to target savers early to the party, which could explain the recent positive change to long-term ISA rates,” said Charlotte Nelson, finance expert at Moneyfacts.

‘Pathetic rates’

Despite the good news, Savings Champion notes there are many more accounts paying “pathetic rates” now than in previous months.

Its analysis shows six months ago, just 10 variable rate accounts were paying 0.01% but today 33 accounts pay this paltry rate. This will soon rise to 35 as HSBC has stated it will be reducing rates on its Instant Success Savings and Flexible Saver accounts from 0.05% to 0.01% from 25 January.

Adding to the bad news, nearly 20% of all easy access accounts are paying 0.05% or less.

Bowes said: “These rates are pathetic and any saver who is sticking with a bank that is paying them so little should really vote with their feet. If you have £10,000 to deposit, you have a choice of getting £1 a year, or £102 a year – I know which most people would want.

“If we are seeing the start of a rate war, then it can only be good news for savers. However, we do appreciate that many savers will think that small moves in rates are not worth their while doing the paperwork – but we strongly disagree.

“Any increase in savings interest in the current environment is worth chasing, especially if you are stuck in one of the worst paying accounts out there at just 0.05% or even less.”