Finally, savers are seeing the first shred of light at the end of a very long tunnel. Building societies and smaller banks are launching accounts in the first flurry of better-paying deals for years.
Although rates are still low, the launches give more evidence that the tide is finally turning for savers. The new accounts are also widening the gap between the best and worst payers, making a switch to a new deal more lucrative.
Three things are helping to push up rates for savers. The Funding for Lending scheme from the Bank of England, launched in 2012 and giving banks access to money at rock-bottom rates, is now closed. That means banks have to look to savers for new funds.
Rates in the commercial money markets – another source of funds for banks and building societies – are rising, and there is talk of a rise in the Bank of England base rate this summer from its current 0.5 per cent.
Coventry BS, the second largest after Nationwide, has raised the rate on its Easy Access Isa 7 to 1.25 per cent. It has also launched an easy-access Online account at 1.25 per cent. Yorkshire BS has introduced a new version of its popular Single Access Saver, also at 1.25 per cent, while Paragon Bank has launched both an easy-access account and cash Isa at 1.31 per cent.
New banks are also pushing up their rates. Bank of Cyprus Online Easy Access has risen from 1.2 per cent early this year to 1.31 per cent including an initial bonus, while Kent Reliance has hiked its rate to 1.3 per cent for new savers opening its Easy Access Account 26. Rates on fixed rate accounts have also edged up, with smaller banks and building societies launching new accounts.
Charlotte Nelson, finance expert at data compilers Moneyfacts, says: ‘With the Bank of England no longer offering the chance to borrow at rock-bottom rates, we are finally seeing providers starting to compete for savers' money. With a base rate rise on the horizon, providers could be looking to lure savers into a deal now rather than having to pay higher rates later on.’
Often their new higher rates are only paid to new savers, however. When banks and building societies launch further issues of their accounts following a rise in base rate, older savers could be left on lower rates. Anna Bowes, director of Savings Champion, says: ‘Things appear to be picking up for savers. There’s a perception switching is not worth the effort because rates are so low. But newer accounts can pay much more than some of the older ones.’
Banks paying loyal savers less include Virgin Money. For example, it pays 1.01 per cent on its current issue of Easy Access Cash E Isa Issue 24, but only 0.5 per cent to some in its previous issues.
Tesco Bank Internet Saver pays 1.12 per cent to new customers and only 0.55 per cent to those who have been with it for a year. And with Post Office, those new to its Online Saver earn 1.22 per cent while some existing savers get a paltry 0.25 per cent. Loyal customers at NatWest will see their cash Isa rate fall from 1.25 to 0.25 per cent on balances of £20,000 when the bonus disappears on 17 May.
Paragon Bank Limited Issue Easy Access 6 and Limited Edition Easy Access Cash Isa 4: 1.31 per cent, minimum £1, available online only
Coventry Building Society Easy Access Isa 7:1.25 per cent, minimum £1, available online, through its branches or by phone or post.
Kent Reliance Easy Access 26:1.3 per cent, minimum £1,000, available online, through its branches or by post.
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