Challenger banks dominate top savings deals
Challenger banks are more than giving their more established high street rivals a run for their money when it comes to offering table-topping savings rates.
New saving account providers are currently offering the highest or among the highest rates available across a wide variety of product categories.
Shawbrook Bank, Aldermore, Chartered Savings Bank are just some of the newer entrants to the market shaking things up, as our look at the accounts at the top of the independent This is Money savings tables reveals.
Under lock and key: The longer you can put your money away, the better the rate you can get
The smaller players continue to dominate the savings market, with many raising rates as big banking giants shy away from passing on the Bank of England's full November rate rise
Shawbrook Bank is sitting top of the easy access cash Isa best-buy table at 1.1 per cent for deposits of at least £1,000.
Fellow challenger Oaknorth - which uses savings deposits to fund entrepreneurs and small businesses - is occupying the third spot in the table at 1.05 per cent.
And among the fixed-term cash Isa product categories, even more challengers can be found among the best rates.
Charter Savings Bank is just behind Virgin Money's one-year best buy of 1.41 per cent with a rate of 1.36 per cent on deposits of at least £1,000. And Aldermore and Oaknorth are just behind at 1.35 per cent.
Aldermore has also just upped the rate on its two-year version to 1.65 per cent and its three-year option now pays 1.75 per cent, taking the second spot in the both best buy tables.
With all three of the Aldermore deals, transfers in are permitted and it's also possible to make additional payments for 14 days after an account is opened. But it's important to bear in mind that funds accessed before the Isas mature will incur loss of interest - 120 days' on the one-year Isa and 180 on the two and three-year versions.
TOP CASH ISAS - FROM EASY ACCESS TO THREE-YEAR FIXED RATES Rate % Easy access WITHOUT bonus Shawbrook Bank (£1,000+) 1.1 Sainsbury's Bank Cash Isa (£500+) 1.06 Oaknorth Bank Easy Access Cash Isa (£1,000+) 1.05 Fixed term - one year Virgin Money (£1+) 1.41 Charter Savings Bank (£1,000+) 1.36 AA Savings (£500+) 1.36 Aldermore Bank (£1,000+) 1.35 Oaknorth Bank (£1,000+) 1.35 Two year Charter Savings Bank (£1,000+ 1.72 Aldermore Bank (£1,000+) 1.65 Virgin Money (£1) 1.55 AA Savings (£500+) 1.51 Leeds BS (£100+) 1.5 Three year Leeds BS (£100+) 1.85 Aldermore Bank (£1,000+) 1.75 Yorkshire BS (£100+) 1.65 Virgin Money (£1+) 1.65 Paragon Bank (£500+) 1.55 Source: This is Money, 11 December 2017
There are top deals on fixed rate bonds available from challenger banks.
The best rate among one-year fixed rate bonds is from Bank of London and the Middle East, with its Premier Deposit Account. Because it is Sharia-compliant, it pays an expected profit rate of 2.00 per cent yearly, rather than stating an interest rate.
However, the minimum and maximum deposit is a pretty hefty £25,000 and no early access is permitted. Savers must also be willing to open a linked current account to open this postal-operated bond so it's unlikely to appeal to the mass market.
But Al Rayan Bank is in second place on the table, with its Fixed Term Deposit paying an expected profit rate of 1.86 per cent yearly on a minimum and maximum investment of £1,000.
Atom Bank is just behind in third place with its 1 Year Fixed Saver, which pays 1.85 per cent yearly from a minimum deposit of £50. Early access is not allowed and the account must be operated through the smartphone app.
The Bank of England raised interest rates by 0.25% in November, most of Britain's big banks did not follow suit
Challengers versus the high street
Anna Bowes, Savingschampion.co.uk, said: 'Loyal savers who have stuck with their high street banks are missing out on as much as 25 times more in interest compared with the best deals on the market. Even more if they don’t need easy access to the money.
'While high street providers have reluctantly increased rates to some of their accounts in response to the base rate rise, best buy savings accounts have been on the increase all year – even though the base rate has only just increased.
'The Bank of England raised the base rate by 0.25 per cent in November this year and the changes for most accounts have finally been applied from 1 December. Yet this rise has not necessarily been passed on in full by the banks.
'For example, Santander’s Instant Saver has gone from 0.01 per cent to 0.10 per cent - a rise of just 0.09 percentage points. But this is by no means the worst. HSBC’s Flexible Saver has increased by just 0.04 percentage points, leaving savers languishing on a paltry 0.05 per cent.'
She added that some providers argue they haven’t increased rates by as much as the base rate rise because they are matching what they dropped them by last year, when the base rate was cut.
'But often that will be because the rate of interest they were paying was so low that they couldn’t actually cut by the full amount.
'As mentioned above, Santander has increased the rate on it Instant Saver by 0.09 percentage points, which is what it was it was cut by last year – but the new rate is now just 0.10 per cent gross/AER.'
She warns savers who fail to move their money from these accounts because of the feeling that there is not much to be gained by switching 'are allowing themselves to be robbed, as they are missing out on valuable additional interest compared to the top-paying accounts'.
'By moving from some of the lowest paying accounts, with the likes of HSBC and Santander, to one of the top-paying accounts without any access restrictions (RCI Bank Freedom Savings Account at 1.30 per cent) you can get up to 25 times more in interest each year. On a deposit of £85,000, that is the difference of earning either £42.50 a year or £1,105 a year.'
As a whole, the very best rates that can be found by shopping around and trusting a provider that you might never have heard of. 'As long as they are covered by the Financial Services Compensation Scheme or equivalent and you keep within the compensation limit of £85,000 per person, per banking licence, you’ve got nothing lose, but potentially substantial interest to gain.'