Small is beautiful – for savers
Savers have faced an especially challenging time in finding any joy on their returns – the Bank of England base rate has been 1% or lower since February 2009 and fell to its current all-time low of just 0.25% in August 2016.
With the base rate so low, many of the established high street banks have simply given up working hard to attract savers, says the Savings Champion, Tom Adams, in the Telegraph newspaper at the beginning of this year.
That opinion now seems to have come to fruition as the financial pages of the Daily Mail reported on the 10th of October 2017 that smaller, relatively unknown banks have stolen a march by default on many high street banks and are now offering the more competitive savings rates.
Slowly but surely, the smaller banks are steadily nudging interest rates on savings accounts - especially short-term and instant-access accounts - steadily upward, leaving their better-known rivals in their wake.
New savings accounts are being opened all the time, but the significant trend in the past year has been towards those newcomers offering higher saving rates than those already established in the market.
This makes it especially important to shop around for the current best rates, set no undue store in loyalty to any existing account you may have, and be prepared to switch from an older account to one offering a newer, better rate of interest.
On many savings accounts, the rate of interest continues to be cut – resulting in a fall in the average instant-access rate from 0.45% at the end of 2016 to just 0.37% today. But that average masks the fact that there are also many newcomers to the market offering rates significantly higher than the average. RCI Bank, for instance, currently offers a rate 30% higher than the average, according to the Mail’s This Is Money.
Short-term, fixed rate savings accounts
A similar pattern is emerging with respect to short-term, fixed rate savings accounts.
The average one-year, fixed rate savings account now pays 1.14% interest, compared to just 0.99% in October of last year and the average two-year account up from 1.13% to 1.41% today.
The best buys, of course, better even these average figures, with Al-Rayan Bank currently offering a fixed rate of 1.91% on its one-year savings accounts and 2.22% on two-year accounts.
Personal Savings Allowance (PSA)
The renewed consumer interest in savings accounts – and the increased competition in the market which has been seen as a result – is perhaps at least in part thanks to the introduction in April 2016 of the Personal Savings Allowance (PSA). This allows you to earn up to £1,000 a year in interest on your savings tax free (if you pay tax at the basic rate of 20%), or up to £500 a year tax free if you pay tax at the higher rate of 40% (there is no tax-free allowance if you pay tax at the advanced rate of 45%).
Financial Services Compensation Scheme (FSCS)
As the Money Saving Expert also points out, savers may also be reassured that their money in any UK-regulated building society or bank savings account is fully protected by the Financial Services Compensation Scheme (FSCS) up to a total of £85,000 per individual account holder.