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Top savings accounts now pay over 4%

Rebecca Goodman
Written By:
Rebecca Goodman

Savers can now access interest rates of over 4%, following the Bank of England’s decision to increase the base rate.

This is the first time since May 2015 a fixed-rate savings account has offered more than 4% interest, according to Moneyfacts.

It is also the first time since February 2012 a two-year fixed-rate product has offered 4%.

Since December 2021, interest rates have steadily been increasing and are now at 2.25%.

Last week, rates were put up 0.50 percentage points, from 1.75%, the seventh time in a row the rate has risen.

They are expected to continue going up as the Bank of England tries to reduce the level of inflation. While this is good news for savers, it also pushes up the cost of borrowing.

The rises follow a prolonged period after the first Covid-19 lockdown when rates remained at 0.1%.

Following the recent interest hike, which puts rates at their highest level since 2008, several banks have upped the rate they pay on savings accounts.

Market-leading rates from challenger banks

The majority of top deals come from challenger banks with the high street banks still offering poor rates.

Those who want to fix their savings for 15 months, can get a rate of 3.65% with United Trust Bank or Charter Savings Bank. If you lock your money away for three months longer, Oxbury Bank pays 3.61% on its 18-month bond while Monument Bank pays 3.60% on a 12-month account.

If stretching to two years, rates are slightly higher. The market-leading two-year fixed-rate account is from Atom Bank, paying 4% interest. It’s followed by Charter Savings Bank paying 3.75% for its two-year account.

The account paying the highest rate of interest comes from Market Harborough Building Society, paying 4.10%, yet to get this you’ll need to lock your money away for three years.

For easy-access accounts, where you can take your money out without penalty, Al Rayan Bank has the market-leading account paying 2.10%. It’s followed by Gatehouse Bank at 2% and Ford Money at 1.95%.

To get the full rate of interest, you may have to pay in a minimum amount when you open the account. Most fixed-rate accounts also don’t allow withdrawals during the fixed-rate period without a loss of interest.

While rates are nowhere near the current level of inflation – which was 8.6% in August – it’s a positive sign for savers that they are starting to increase.

One-year accounts are ‘flourishing’

Historically savers have been required to put their money away for at least a few years to get a top rate of interest.

While most of the highest rates are still reserved for long-term fixed-rate accounts, there are some attractive deals for those who just want to fix for a year or two.

Rachel Springall, spokesperson for Moneyfacts, said: “Savers who are prepared to lock their cash away for a guaranteed return might not wish to do so for a long period of time, thankfully though, the one-year fixed bond arena is flourishing.

“Fixed ISA rates have also improved, but the top rates are still lower than the top fixed bond rates, so it’s essential savers consider their ISA allowance and any Personal Savings Allowance when they invest.

“As interest rates continue to rise and the cost of living crisis takes its toll, savers will need to decide how much of their cash they are prepared to lock down for a guaranteed return and how much they need closer at hand.

“Regardless of what type of account they choose, it’s imperative they consider the more unfamiliar brands who offer attractive returns and who are covered by the Financial Services Compensation Scheme (FSCS).”

The news comes during UK Savings Week, as organised by the Building Societies Association.