Revealed: The banks passing on higher interest rates to savers
A savings war has broken out in the past week as several banks and building societies up the rate they pay on fixed rate bonds.
The rate war follows several increases to the Bank of England base rate which now stands at 5%. The best fixed rate bonds pay above this rate, while easy access accounts typically pay below the base rate. This means that people who need quick access to their money won’t be able to benefit from the best rates on the market.
Savers can now earn more than 6% interest on one-year fixed rate bonds. The top interest rate interest available on fixed rate bonds has risen several times over the past few weeks as savings institutions jostle for the top position on the best buy tables.
The rate increases follow criticism from the Government that banks aren’t passing higher interest rates on to savers quickly enough.
Katie Brain, consumer banking expert at Defaqto, said: “Fixed rate savings have hit 6% with JN Bank launching four- and five-year fixed rates, and Charter Savings offering 6% for one year and 6.10% for two years, which is great news for savers.
“It really is worth shopping around to find the best rates, which may not be from a name you have heard of before, as it is the new challenger banks that are offering the best rates, not the high street banks.”
JN Bank, which has been competitive on fixed rate bonds in recent weeks, is poised to launch new rates this week with its website currently showing a message saying “new rates coming soon” for all its fixed rate bond products.
The best fixed rate bonds
- Allica Bank: One-year fixed rate bond at 6.02%
- Al Rayan Bank: One-year fixed rate bond at 6.01% (expected profit rate)
- Charter Savings Bank: One-year fixed rate bond at 6%
- Charter Savings Bank: 18-month fixed rate bond at 6.01%
- Cynergy Bank: 18-month fixed rate bond at 5.92%
- Charter Savings Bank: Two-year fixed rate bond at 6.10%
- Smart Save: Two-year fixed rate bond at 5.95%
- Kent Reliance: Two-year fixed rate bond at 5.94%
These rates are significantly higher than the average fixed rate savings rates available in June 2022. A year ago, the best one-year bond paid just 2.61% and the best five-year bond paid 3.25%.
Whilst the high rates are finally some good news for savers, it’s important to remember the tax implications.
“Be mindful that you can only earn £1,000 in interest before it is taxable, £500 if you’re a higher rate taxpayer,” said Brain, “So, although these savings rates are great, people need to be aware it could cost them if they have a lump sum to deposit.”