False dawn for savers as bond rate rises set to stall

Rates on popular one-year bonds have risen to pre-Covid levels, but providers are likely to cut these soon, experts warn.

Savers are being warned to act fast and grab deals with recently-boosted rates before they disappear.

Interest on savings deals fell to the lowest level on record in June, but the last week has seen challenger banks relaunch offers with unusually high rates. 

Fixed-rate bonds lasting 12 months are the most popular term for savers, and dipped to a low of 0.86% in June. But the best-buy deal is now 1.2%, from QIB (UK), far outstripping any other one-year savings deal and matching the top rate available in January before Covid-19.

QIB is an Islamic bank, so offers an ‘expected profit rate’ rather than guaranteed interest, for religious reasons. However, no UK Islamic savings deal has ever failed to pay its advertised rate, and some even return more.

The Sharia-compliant lender is followed by Secure Trust Bank at 1.16%, United Trust Bank at 1.10%, and Charter Savings Bank at 1.05%.

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QIB, Charter Savings Bank and United Trust have all bucked the overall trend for lower savings rates by raising their one-year fixed bond rates more than once since the start of July.

The latter two did so three times, according to analysis by Moneyfacts.

But savers should move quickly to secure these higher interest rate deals.

Rachel Springall, personal finance expert at Moneyfacts, says: “It is vital savers act quickly to take advantage of the top rate deals and also switch if they find they are earning a poor return, especially if they have their cash in an easy access account with a high street bank.

"Consumers would be wise to remain vigilant and consider the more unfamiliar challenger banks if they hope to secure a lucrative return on their cash during this time.”

She added the next 12 months look uncertain for the savings market and any positive changes now could be fleeting. 

Banks have been cutting savings rates for several reasons.

First is that the Bank of England base rate is at a record low of 0.1%, and this is factored in to the interest paid to savers.

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The Bank also refreshed a scheme that would allow high street lenders to borrow money from it at rock-bottom rates, reducing their need to entice savers’ cash with decent deals.

Challenger banks are being especially competitive because they sense a rare opportunity to get customer deposits quickly as larger banks pare back rates.

But Anthony Morrow, founder of Open Money, a financial advice firm, says savers looking for competitive rates should check their provider regularly, especially if it is a challenger bank.

He says: “Any savings provider needs to manage its customer deposits, and interest rates are the single easiest way to do that. The problem is that the amount of deposits some of these challenger banks can take in can be quite small,” he says.

“This means their competitive rates can be oversubscribed pretty quickly.”