Savings rates better from challengers

With the Financial Conduct Authority recently naming and shaming the banks which pay the lowest interest rates on savings products, new analysis from MoneySuperMarket has found the highest rates across a range of savings products are offered by non-traditional banks.

Savings rates better from challengers

We should not dismiss challenger and foreign banks if we want to get the best returns on our savings, according to MoneySuperMarket. The market leading one year fixed rate product currently comes from app-based Atom Bank and IKANO, both at 1.40%.

The best three year fixed deal is 1.65% from Hanley Economic Building Society, with IKANO Bank offering a similar rate of 1.63%. Santander offers the leading rates among more established banks but these are miserly in comparison, at 0.70% for a one year fixed bond and 1% for a three year fixed deal.

“Savings rates are currently at rock bottom, therefore it’s extra important to make sure you’re getting the best deal possible,” said Kevin Mountford, banking expert at MoneySuperMarket.

“Make sure you’re also using your personal savings allowance – with this, most adults can earn up to £1,000 interest on their savings each year without having to pay any tax.”

For those who are prepared to tie their money away for longer, the best five year fixed rate product comes from challenger bank IKANO at 2.05%, followed by new digital bank Masthaven at 2.01%, while Hampshire Trust Bank, Paragon Bank and Vanquis Bank all offer 1.95%.

Anyone that needs to dip into their savings regularly should opt for an easy access savings account – RCI and Tesco Bank offer the most competitive rates at 1%, double that of TSB’s 0.50%.

Some savers looking for the best rates may be deterred from products offered by challengers or foreign banks, but they should not be put off by lesser known names. Nearly all of these banks are part of the UK Financial Services Compensation Scheme, which currently protects savings up to £75,000, rising to £85,000 from the end of January 2017. Foreign banks such as RCI and IKANO are covered up to the same amount by the French and Swedish equivalent schemes so even if consumers have not heard of these banks they can rest assured they are as secure as the bigger names – even though any claims made in the event of something going wrong would need to be routed through those overseas schemes.

“You shouldn’t shy away from lesser known brands, as they are still secure and trustworthy, especially as it seems the traditional banks aren’t interested in giving savers better rates at the moment,” said Mountford.

“The FCA has recently introduced rules forcing firms to provide clear information on their savings products so comparisons can be made more easily than before.”

For those who are happy to look outside of traditional savings products, Santander still offers a very competitive 1.50% on its 123 current account for balances up to £20,000.

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