Three major building societies have launched savings accounts that put them among top payers.
Coventry BS, the second largest after Nationwide, raised the rate on its Easy Access Isa 7 for the second time recently, and now pays 1.25 per cent.
Rates rising: Coventry BS, the second largest after Nationwide, raised the rate on its Easy Access Isa 7 for the second time recently, and now pays 1.25 per cent
Yorkshire BS introduced a new version of its popular Single Access Saver also at 1.25 per cent, while Leeds BS came out with a new cash Isa with the rate linked to base rate.
It pays 0.96 per cent with a pledge you will earn 0.46 percentage points over base rate until June next year. If base rate rises, savers are guaranteed that their return will rise in line.
Although rates are still low, it’s the first shred of light at the end of the tunnel for savers after years of rock-bottom returns.
The new accounts are also widening the gap between the best and worst payers, making a switch to a new deal more lucrative.
In the first four months of this year, providers launched 1,048 new variable and fixed-rate accounts, research from advice website Savings Champion shows.
Nearly half (47 per cent) pay higher rates than previous offerings. This is a marked turnaround on the same period last year, when only 38 per cent of the 1,059 new accounts paid more.
Three things are helping to push up rates for savers. The Funding for Lending Scheme from the Bank of England, launched in 2012, is now closed.
This let banks borrow at rock-bottom rates, so they no longer needed to rely on savers.
Rates in the commercial money markets — another source of funds for banks and building societies — are rising, and there is talk of a hike in the Bank of England base rate from its current 0.5 per cent.
New banks are also pushing up their rates. On the same day as the three building societies launched their new accounts, Bank of Cyprus UK announced its Online Easy Access would rise to 1.25 per cent and Kent Reliance hiked its rate to 1.3 per cent for new savers opening its Easy Access Account.
Meanwhile, Teachers BS launched a one-year fixed rate cash Isa at 1.4 per cent, just behind the top 1.48 per cent from Kent Reliance.
Charlotte Nelson, finance expert at data compiler Moneyfacts, says: ‘With the Bank of England no longer offering providers 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 will be looking to lure savers into a deal now so keeping the interest they have to pay out to a minimum.’
When banks and building societies launch further issues of their accounts following a rise in base rate, the new rates are likely to apply only to new savers. Those already in an account will continue to earn the lower rate.
Anna Bowes, director at Savings Champion, says: ‘Things appear to be picking up for savers. When rates move, you need to be vigilant and switch if there is a better rate elsewhere.’
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