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The rate of fixed rate savings deals is heading upwards again – and at a rapid rate.
A string of lesser-known challenger banks have kickstarted the upward movement, with a wave of best buys hitting the market.
Yesterday, Al Rayan Bank launched a market-leading one-year fix paying 4.31 per cent, a new best buy two-year fix paying 4.45 per cent and a new best buy three-year deal paying 4.57 per cent.
Back on the move: Since December average one-year rates have been broadly flat the past couple of weeks has seen some upward movement
This follows Ahli United Bank, which last week launched a 4.25 per cent rate via the savings platform Raisin UK.* Earlier this week, Allica Bank and Vanquis Bank upped their one-year rates to 4.25 per cent, while IsBank yesterday upped its one-year deal to 4.25 per cent.
Vanquis Bank also launched a two-year fix paying 4.35 per cent and a three-year fix paying 4.4 per cent.
Until recently, the rates available on the best one-year fixed rate products have been falling back ever since they peaked at the start of November 2022.
In the three months between the start of November 2022 and February 2023, the best one-year rate fell from a high of 4.65 per cent to 4.16 per cent.
Since December last year, average one-year rates have been broadly flat, while longer term fixed deals have fallen on average.
Between 1 December 2022 and 13 February of this year, average one-year fixed rates rates only rose from 1.51 per cent to 1.61 per cent, according to Moneyfacts.
However, in the past week alone the average rate has risen from 3.61 per cent to 3.68 per cent.
Why are savings rates rising?
Given the Bank of England upped the base rate from 3 per cent to 3.5 per cent in December and then from 3.5 per cent to 4 per cent at the start of this month, savers may have been surprised that fixed rate savings deals have fallen in generosity in recent months.
This was largely because of two factors falling.
The first was long-term swap rates, which affect how fixed-rate bonds are priced.
The second is market expectations on where the base rate is going to peak, which tends to show where the markets think rates are headed in the longer term.
Best accounts at a glance
There are none that beat inflation this month, however, make sure you shop around for the best returns possible.
Easy-access: Yorkshire BS – 3.35%
One-year fixed-rate: Al Rayan Bank – 4.31%
Two-year fixed-rate: Al Rayan Bank – 4.47%
Three-year fixed rate: Al Rayan Bank – 4.57%
Easy-access cash Isa: Paragon Bank – 3.10%
However, swap rates have edged up in recent weeks, encouraging some banks to increase some of their fixed rate savings deals.
The Bank of England is also expected to increase its base rate to 4.25 per cent when it meets again next month, which could mean further rises to savings bonds.
A spokesperson for financial experts The Savings Guru said: ‘Swap rates are up, so this is making one-year fixes look more attractive for those banks who want funds at present.
‘Also, longer-term swap rates are lower than one-year swap rates, so this means one-year looks the most attractive of the fixed terms to banks.’
Competition is also constantly increasing, according to The Savings Guru, driving savings rates even higher.
However, while savers may be tempted to hold out in the hope of better rates to come, the advice is that this is probably as good as it gets for now – at least for one-year fixes.
According to The Savings Guru, this upward increase in savings rates is short term, rather than a sign that fixed rates are heading back up to their peak of November last year.
The savings experts added that one-year fixed rate bonds should hit highs of 4.25 per cent, with the odd provider going above this.
Should you sign up to new top savings deals?
Some savers may be worried about putting their cash into a lesser-known bank that they may not have heard of.
However, they should take comfort from the fact that Al Rayan Bank, Ahli United Bank, Vanquis Bank and Allica Bank all have protection from the Financial Services Compensation Scheme.
This means consumer deposits will essentially be insured up to £85,000 per individual, or £170,000 in the case of joint accounts.
This is the same level as any fully authorised and regulated UK bank, and means savers’ cash is protected were the worst to happen and one of these providers was to go under.
Instead of paying an interest to savers, Al Rayan Bank – as an Islamic bank – invests customers’ deposits in ethical, Sharia compliant activities to generate a profit.
Such profit rates deliver a Sharia-compliant expected return rather than interest, as with standard accounts. Since the bank was founded in 2004 it has always paid at least the profit rate it has quoted to its customers.
Both Ahli United Bank and Is Bank are offering their rates via the savings platform, Raisin UK.*
Raisin UK allow savers to sign up and manage accounts with different banks in one place. It means they can switch money between providers and get the best rates with less admin.
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