Savers looking to tuck their money away risk-free can now get the highest average yields on cash savings accounts in more than a decade, according to data from Moneyfacts.
Savings rates rose for the 10th consecutive month for the first time since the firm’s records began in February 2007, meaning savers may not have to take the risk of stock markets to make higher returns.
According to the report, the average easy access rate rose to 1.43% – its highest in 13 years – while the top rate of 2.86% can be accessed through Zopa’s mobile app. Chorley Building Society is second highest-paying provider, offering 2.85% through an account opened online, in branch or by mail. Savers can only make four withdrawals per year on this account.
All of the accounts mentioned are covered by the Financial Services Compensation Scheme, which means that consumers are covered up to £85,000 per provider and guaranteed their money back from the government if a bank or building society collapses.
Rachel Springall, finance expert at Moneyfacts, said: “Savings rates are now at their highest levels in more than a decade, which is a significant milestone. In 2021, all average savings rates fell to record lows, so it’s positive to see notable improvements across the savings spectrum this year.”
The main driver has been the pace of interest rate rises by the Bank of England, which has upped the base rate from 0.1% in December to 3.5%, as the below chart shows.
Source: Bank of England
This has been combined with increased competition among challenger banks, which is clear from the a “popular arena” of one-year fixed bond, Springall said.
“Savers coming off a one-year bond will note the average rate has risen by 2.71% since December 2021 and the average rate on a one-year fixed ISA has risen by 2.73% over the same period,” she said.
Indeed, the average one-year fixed bond rose to 3.51% and stands at its highest level since December 2008, while the top rate of 4.31% is offered by the State Bank of India. A minimum £10,000 is required, however, and an account can be set up online, in branch, by mail or through its mobile app.
The second and third-best rates also have a minimum £10,000 deposit – Smart Save pays 4.26% while National Bank of Egypt (through Raisin UK) has a rate of 4.25%. For savers with smaller pots, Shawbrook Bank offers the same 4.25% rate with a starting pot of £1,000. All three accounts are only available to open online.
The average longer-term fixed bond rate, which ranges from two to five years, rose to 3.89% and is at its highest point since January 2010. At present, the top fixed-rate bond is a six-year fixed-term deposit is through Melton Building Society, which pays 4.9% and requires an initial £10,000. It can only be opened in branch.
The six-year bonds from Beehive Money offers 4.8% and can be opened online or via mobile and with a minimum £500 upon opening.
Turning to cash ISAs, Virgin Money’s 3% rate is the top easy access offer, while State Bank of India’s two-, three- and five-year bonds all pay 4.65%.
None of the rates listed are close to the current 10.7% inflation, however, which means that savers are losing money in real terms.
Springall also warned that the month-on-month rises between the average fixed bond and fixed ISA rates between the start of November and December were more subdued. If this proves to be a change in momentum then rates may begin to come down 2023 as savings providers reassess their market positions during an unprecedented period of interest rate uncertainty.
“If providers cut back their rates, it can lead to other brands being more exposed on the top rate tables, leading to further cuts,” she said. “Moving into 2023, savers and providers alike will need to act quickly to keep on top of the changing market.”