UK Savings Interest Rates Surprise as 1 Year Bonds Reach Two-year High

By: MoneyFacts

The latest data from Moneyfacts.co.uk can reveal that the savings market has improved significantly over the past year, so much so that both average rates and table-topping Best Buy deals beat the rates seen around two years ago.

Savers should start to notice better rates in the market overall, as rate rises have outweighed cuts for 17 consecutive months, with Moneyfacts.co.uk recording 115 rate rises and 44 rate cuts in May. This is in stark contrast to two years ago, as savings cuts (156) outweighed rises (18) during May 2016.

Statistics released today furthermore show that the Consumer Prices Index (CPI) remained at 2.4% during May, so there are 17 fixed rate bonds (based on a £10k deposit) that can beat or match this rate*.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“What a difference a year or two can make when it comes to savings interest. Right now, providers are increasing rates and sparking competition within the Best Buys, whereas two years ago 156 savings cuts outweighed 18 rises and inflation sat at a remarkably low 0.3%.

“Still, savings rates have a way to go before they can come even close to paying the rates seen a good six years ago, before Government lending initiatives wrecked the savings market. The good news is that these schemes have closed, which means the market can finally start to gradually get back on the right track.

“One of the areas to see some special attention has been the short-term bond market, with one-year bonds improving so much that the top rates rival those seen in 2016. Indeed, the average one-year bond rate stands at 1.29%, the highest recorded rate since April 2016 when it stood at 1.31%.

“A month ago we saw the first 2% one-year fixed bond since August 2017, from Gatehouse Bank, who took the spotlight and followed it up with rate rises on its two, three and five-year bonds last week. In retaliation for this table-topping one-year bond, Atom Bank increased its one-year rate to the now market-leading 2.05% last week.

“One thing savers may notice is that both deals are from brands they may not be familiar with. However, that doesn’t mean they can’t be trusted. Gatehouse Bank (which may be better known under its former name, Milestone Savings) is an Islamic bank and has so far claimed to have never under-paid their expected profit rates. Meanwhile, Atom Bank has been going strong since they first launched their savings bonds in 2016 and is keen to seek savers’ deposits as a challenger bank.

“One reason savers might miss out on these two offers, and indeed most of the other top-ten Best Buy deals, is if they refuse to bank online or via smartphone. Not being online can also mean missing out on vital rate alerts. Getting a family member or friend to keep an eye on the Best Buy charts could be a great way to stay in the know for those that do not enjoy the online lifestyle.

“Savers as always will want to act fast to take advantage of the top rates, but they should also be mindful of locking into a fixed bond prematurely. If this does happen, savers should carefully check the terms attached to any cooling-off period before they try to extract their funds, as in most cases there will be a penalty to pay for those who change their mind.”

*Data Note: Please note that these savings product numbers only include deals that are available to all UK residents (this figure does not count each interest payment option for each account). Moneyfacts has chosen not to include products that have limited access, such as locals-only, high net-worth clients or linked products which mean you must have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts are not available to your entire readership, their inclusion may be misleading to your readers by directing them to accounts they may not be entitled to. We do, of course, hold all this data should you require it. Our daily Moneyfacts savings rate monitoring started in July 2015 and is a record of live standard savings account changes, which include fixed rate bonds of all terms, all ISAs, notice accounts and no notice accounts.

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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