Challenger Banks Herald a Savings Market New Dawn

By: MoneyFacts

Data from Moneyfacts.co.uk reveals that fierce competition is leading to encouraging signs of improvement in the savings market.

In the month of September, Moneyfacts has recorded 104 savings rate rises, with some increases being as high as 0.45%. This dwarfs the 28 rate reductions that have taken place over the same period. As a result, the best one-year fixed rate bond has increased from 1.90% a year ago to 2.10% today.

There is also good news for savers in terms of inflation. The latest figures show that the Consumer Prices Index (CPI) fell from 0% to -0.1% during September, which means that savings won’t be greatly impacted. Unsurprisingly, all of the 902 savings accounts currently on the market can beat inflation, and of these 730* (158 no notice, 83 notice, 268 fixed rate bonds and 221 cash ISAs) are without restrictive criteria*.

Savers who invested £10,000 five years ago, however, will have been impacted by the damaging effects of high inflation, tax deductions and low interest rates of the following years. Based on the average interest earned from easy access savings accounts and average inflation and tax at 20%, their spending power will have dropped to just £8,738.01 today.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said:

“The boost to certain sectors of the savings market is providing a well-needed lifeline to many savers who have been struggling in recent times. However, despite the increased presence of competitive new brands, it is shocking to see the desertion of high street providers from the Best Buys.

“Savers now have more opportunity to achieve a higher rate of return since the Funding for Lending scheme decimated the savings market, but they must look away from the more traditional providers to secure the best rates. For example, the average easy access account from high street providers** is 0.61%; however, challenger banks offer a much better rate of 1.08%.

“Almost all accounts now beat the rate of inflation, but this is no excuse for savers to rest on their laurels as many of the main brands are using savers’ reluctance to switch to their advantage, allowing poor rates to remain.

“Savers need to vote with their feet, moving to the new challenger brands, which offer the best chance for achieving a market-leading rate. For example, the top paying two-year fixed rate bond is currently from Paragon Bank, paying 2.40% yearly. Santander, on the other hand, offers just 1.00% - a massive 1.40% less.

“As it is relatively easy to check whether these new savings providers are protected by the Financial Services Compensation Scheme or a European equivalent, there should be little to be nervous about. However, rates can fall just as quickly as they rise, so savers shouldn’t wait too long before grabbing a great deal.”

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Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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