Best Buy competition picks back up following a lull - so savers should still check to see if they can earn more

27th April 2018

Since the beginning of 2017, best buy savings rates have increased significantly, by between 19% (notice accounts) and 66% (five year fixed rate ISAs).

However, the picture is very different since the Bank of England base rate rise in November 2017.

Bank of England

Since then, although the base rate was increased by 0.25% - back up to 0.50% - in a number of categories best buy interest rates are virtually the same or even lower today than they were at the beginning of November – before the base rate rise.

And although average rates have gone up, the picture isn’t much better, for example, the average easy access account rate is up by less than 0.10%. This means that many poor-paying accounts also failed to respond to the rise in the base rate – leaving many savers stranded in accounts paying pathetic rates of interest.

However, things are on the up again.

While it 's been really disappointing that competition seemed to have faded between the challenger banks so far this year, things do seem to be going back in the right direction and there have been some interesting developments in the cash ISA and longer term fixed rate bond markets in particular.

As a whole, often far better rates can be earned across the board by shopping around, especially for those languishing with a high street provider.

One area where rates have increased strongly since the base rate rise, has been on best buy easy access cash ISAs.

On 3rd November 2017, the best easy access cash ISA was paying 1.07% (Post Office Online - ISA Easy Access Issue 11). Today the best easy access cash ISA is paying 1.35% (Al Rayan Bank - Instant Access Cash ISA). An increase of 26%.

With the prospect of a base rate rise potentially on hold, following an unexpected drop in the CPI Inflation rate, savers can’t simply wait for a base rate rise to help them earn more interest.

With Al Rayan Bank increasing the rate on its Instant Access cash ISA to 1.35% with effect from 23rd April, this means that the best cash ISA is now paying a better rate than the best non-ISA easy access account.

And for the first time in four years, the best five-year fixed rate ISA is paying virtually the same rate as the best five-year fixed rate bond; with the added bonus being that, at 2.70% gross/AER (Vanquis Bank’s five year fixed rate bond*) and 2.65% tax free/AER (United Bank UK’s five year cash ISA), these rates are higher than the current rate of inflation.

While many savers may worry about locking their money up for five years, as history has taught us, things don’t always happen as you expect – and even if the base rate does increase, rates on fixed rate bonds in particular, don’t necessarily move in line with it.

All the time that savers are waiting for rates to improve, they are missing out on some of the best interest rates currently available, so it may not be a bad idea to deposit at least some money into accounts paying the very best rates while we wait for things to improve.

At the very least, assuming the Bank of England continues drive inflation back to its 2% target, this money will be earning more than inflation perhaps for the whole term.

*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).


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