Coventry Building Society has raced ahead of rivals this week with a new limited access saver account paying 1.35 per cent – the highest easy access rate on the market – followed closely by a new offering from Bank of Cyprus UK at 1.34 per cent.
At the same time challenger, Atom Bank, has added two new fixed-term bonds to its line up, a three month fix at 1.3 per cent and a six-month account paying 1.8 per cent.
But are any of them worth opening? Read our verdict below
Bonus rates: The top-paying accounts all come with an interest rate boost that drops off after 12-months
New best buy easy access accounts – but there’s a catch
The top three easy access rates currently available are, Coventry BS at 1.35 per cent, Bank of Cyprus UK paying 1.34 per cent and the Post Office offering 1.33 per cent.
All three come with a slight catch – the headline interest is boosted by a temporary bonus that means that you only earn the eye-catching rate for a limited time before it disappears.
After a year the bonus period ends and the accounts revert to the underlying rate, which can be as little as 0.25 per cent.
Coventry BS drops its rate to 1 per cent after a year, the Bank of Cyprus UK account pays 0.85 per cent on balances after the first year and The Post Office slashes its rate to just 0.25 per cent after 12 months.
This type of account was previously popular with the banks, however the introduction of the Funding for Lending Scheme and a formal review of teaser rates by the Financial Conduct Authority in 2015 has meant fewer banks offering bonus accounts.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: ‘Back in 2010 bonus rates on savings accounts made up one in 10 new accounts on the market.
HOW TO OPEN THE TOP ACCOUNTS
Coventry BS, Bank of Cyprus UK and Post Office all allow a minimum deposit of just £1.
Coventry BS’s account can be opened online, by phone, post or in branch.
Both Bank of Cyprus UK and Post Office can be opened and managed online only.
Deposits with all three are covered by the Financial Services Compensation Scheme up to £85,000.
Watch out though, Coventry BS has an added restriction on the top-paying account. Savers who make more than three withdrawals in a year incur a penalty of 50 days’ interest.
‘However, cheap government money from the FLS meant banks weren’t competing so hard for cash from savers, and the FCA review of the savings market in 2015 encouraged more banks to drop teaser rates. The percentage of accounts offering bonuses consequently dropped back to 5 per cent.’
‘However, like all fashions eventually do, bonus rates are making a comeback.’
According to Coles, now that the Funding for Lending scheme has ended banks are more likely to use eye-catching rates on easy-access accounts to draw in more funds.
This is because a temporary bonus can boost a rate to best-buy position, attracting savers in the short-term without committing the bank to paying high interest long-term.
Four of the top ten easy access savings rates in This is Money’s independent best buy savings tables come with a temporary bonus.
However, think carefully before opening one of these accounts, if you are unwilling to chase the top rate again after a year or you think you are likely to forget to switch to a different account, you might be better off with a slightly lower rate with no bonus but that pays out for longer.
If you do open a bonus account, make sure you set a reminder to move your savings pot after the first year.
Top savings accounts without teaser rates
Alternatively there are a clutch of accounts paying sightly less interest, but without a bonus rate attached.
On a £1,000 deposit a 1.3 per cent rate will earn £13.08 in interest over a year – that’s just 50p less than the market-leading deal paying 1.35 per cent.
The top ordinary easy access deal currently is 1.3 per cent. RCI Bank’s Freedom Savings, Shawbrook Bank’s Easy Access Account, Sainsbury’s Bank’s Defined Access Saver and Virgin Money’s Double Take E-Saver all pay 1.3 per cent.
Would a short-term fix term bond suit you instead?
Atom Bank has this week launched two new accounts. A three-month fixed rate bond paying 1.3 AER per cent (1.29 per cent gross) and a six-month deal paying 1.8 AER per cent (1.79 per cent gross).
The app-only bank brings the number of banks offering these shorter bonds to just 18, nearly all of which are lesser-known challenger banks.
Both accounts now beat the rest of the field, according to Rachel Springall, finance expert at Moneyfacts.co.uk.
She says: ‘Challenger banks offering a shorter-term fixed bond has become more common place in recent years but it is always reassuring to see even more brands enter this limited market. It’s business sense for challengers to offer short-term fixed bonds if other areas of the market become saturated. It wouldn’t be too surprising to see even more brands consider this area.
‘Savers looking for a fixed rate over the shorter-term may well turn to these types of bonds instead of variable deals, if they happy to lock in for either the three or six month window of course.
‘OakNorth Bank sat at the top of the six month bond arena with 1.75 per cent, but they will now be superseded by Atom Bank paying 1.79 per cent. The highest three month bond was on offer by Fidor Bank at 0.90 per cent, lower than Atom Banks 1.29 per cent.
‘Atom Bank already offer some highly competitive rates for longer term fixed bonds, so it’s positive to see them branch into this area of the market. Some savers will miss out on these new deals if they are not prepared to apply via the mobile app.’
|Product||Gross rate at £10K|
|Atom Bank||3 Month Fixed Saver||1.29%|
|Fidor Bank||Savings Bond||0.90%|
|Metro Bank||Fixed Term Savings Account||0.75%|
|Clydesdale Bank||Term Deposit||0.45%|
|Yorkshire Bank||Term Deposit||0.45%|
|HSBC||Fixed Rate Saver||0.30%|
|Al Rayan Bank||Fixed Term Deposit||0.10%|
|United Bank UK||3 Month Fixed Term Deposit||0.10%|
|Atom Bank||6 Month Fixed Saver||1.79%|
|OakNorth||Fixed Term Deposit||1.75%|
|Masthaven Bank||6 Month Flexible Term Saver||1.55%|
|Bank of London and The Middle East||Premier Deposit Account (Anticipated Profit Rate)||1.25%|
|Al Rayan Bank||Fixed Term Deposit||1.00%|
|Fidor Bank||Savings Bond||1.00%|
|ICICI Bank UK||Saver Term Deposit||1.00%|
|Source: moneyfacts.co.uk, correct as of July 9|
Remember though, while the deals from Atom Bank are both best-buys, the rates may not compare that well to other similar accounts.
The major benefit of locking your cash in a fixed-term bond is a higher interest rate.
For example the top one-year bond, from Atom Bank, pays 2.05 per cent compared to 1.35 per cent from the top easy-access account.
However Atom Bank’s top-paying three month bond pays less at 1.3 per cent.
Of course the other benefit is the guarantee that your interest rate won’t drop for the term of the account.
However with interest rates tipped to rise it is unlikely, although not impossible, that banks will reduce the interest on their easy access accounts.