What will be the impact of rising interest rates?
Savers must be reeling as they have to absorb one new record-breaking savings rate after another, but the latest is another big step forwards.
On Monday, I wrote that Beehive Money had just launched Britain’s highest fixed-rate savings account paying a fixed rate of 5.45 percent for a year.
Offered by the Nottingham Building Society, it’s open to all UK residents rather than being restricted to Notts members.
The minimum opening balance is £500 and the maximum deposit is £250,000, with the first £85,000 protected by the government-backed Financial Services Compensation Scheme (FSCS).
Second-placed Recognise Bank was paying 5.40 percent a year fixed for one year while United Trust Bank paid 5.35 percent.
Now all three will have to raise their game if they want to remain market leaders, as a new account was announced yesterday paying a fixed rate of 5.70 percent a year.
Someone who deposits £10,000 with Beehive would earn £545 worth of interest over the 12 months term, this new account would give them £575.
While that’s only £25 extra it will attract a lot of people. As ever, this account isn’t for everybody, so check whether it’s something you fancy taking out.
The new 5.70 percent deal is offered via savings platform Raisin UK, an online marketplace for savers which offers exclusive accounts from different banks and building societies.
It’s had a good run lately.
Yet its latest offering is from a bank I’ve never heard of and you probably haven’t too. It’s called Ahli United Bank, set up in 1966 for offshore investors and Gulf visitors to the UK.
While that will understandably worry some, deposits made in Ahli via Raisin UK are protected by the FSCS up to £85,000 per person (£170,000 for joint accounts) in the usual way.
It’s as safe as if you put it with Lloyds, HSBC, Lloyds or NatWest, but you’ll get a much higher rate of interest than they’ll give you.
Ahli’s account is open to all UK adults only minimum deposit is £1,000, with the maximum deliberately set at £85,000.
It’s a standard savings account, rather than a Shariah-based offering, that pays a fixed rate of interest with no access to your money during the term.
Raising UK co-founder Kevin Mountford says the best deals are available on easy access and short-term fixed rates these days.
Savers have responded by depositing an additional £6billion in fixed-term bonds in June with record-breaking flows into cash Isas, latest BoE figures show.
This week will be crucial, with the latest inflation figures published on Wednesday and the BoE’s monetary policy committee (MPC) expected to hike interest rates again on Thursday.
There’s a growing suspicion that it may hike by 0.5 percent this time, taking bank rate to five percent.
The last time it was at the level was in April 2008, in the early stages of the financial crisis, more than 15 years ago.
At that time savings accounts were paying more than 6%, and we are likely to re-enter that world again.
At speed, if the last week is anything to go by.
What’s great news for savers is terrible news for homeowners, who are also seeing mortgage rates rocket by the day, which is the last thing they want.
Mortgages are already at six percent, with the big banks up to their old trick of hiking borrowing costs far faster than savings rates.
They’ll climb even higher if base rates hit 4.75 percent or five percent this week.
Savers face one tough decision, though, as they are presented with a blizzard of new deals.
For those who want to lock in for longer, Investec pays a fixed rate of 5.45 percent a year over two years, again, via Raisin. Beehive and United Trust Bank pay 5.45 percent over three years.
United Trust leapfrogged to the top of the five-year table yesterday, paying a fixed rate of 5.40 percent for five years. It hopped over Tandem which pays 5.35 percent through Raisin.
Savers will be tempted to see what tomorrow brings but at some point they’ll have to make their choice.
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