August savings round up
Flurry of changes to interest rates on savings
There’s been a huge amount of changes in our fixed rate best buy tables to start the month. Although Bank of London & Middle East continue to dominate the fixed rate bond tables, they have cut their rates by at least 0.10% across every product category they are in.
They’ve also been followed by a number of competitors behind them in tables too. Last month we covered Smart Save Bank’s return to market with a leading 1 Year rate of 2.01%. This has already been cut back to 1.95%, although they retain a place in our top picks for 1 Year. Shawbrook Bank leapfrogged them with 2.02% but this was withdrawn before the end of July, as I predicted when they launched. Metro Bank have also reduced their 1 Year, which was paying 2%.
Islamic Banks aside, Charter Savings Bank now lead the way on 1 Year with 2.01%, but I don’t expect this to last the month. They are followed by OakNorth Bank (1.96%) and Smart Save Bank.
Where next for savings rates?
Naturally, many savers have been in touch to ask us if this downward trend is the start of a trend or a temporary blip. I do see this as a temporary blip but would recommend savers move swiftly if they see an attractive rate.
In the current environment, anything 2% or above on 1 Year is very attractive as is anything 2.20% or more on 2 Year. For longer term savers, anything over 2.50% on 5 Year Fixed Rate Bonds is unlikely to hang around for long.
The reason I believe this is a temporary blip is that interest rates on savings has largely been driven by competition from the new entrant banks. It is the absence of this which is causing some of the downward movements at present. I expect this to return after the summer, as there’s always a lull over the holiday season, and because I expect to see more new entrants to the market in the autumn. Revverbank and Zopa are in what is known as mobilisation, which allows live testing of their systems ahead of launch to market. There are a number of others close behind them too, which I believe will help stimulate the market in the autumn
How do I find out more about the new banks and if they are safe?
I am often asked whether it is safe to put savings in the new entrant banks, who dominate the best buy tables. Savers are often concerned about names they are not familiar with or that seem to be relatively new.
The short answer is that, if the bank you are looking to save with is covered by the government’s Financial Services Compensation Scheme (FSCS), then your savings as an individual are protected up to the scheme limit of £85,000. For joint accounts, this is £170,000. It’s important to check that the bank does not share its licence e.g. Lloyds and Halifax Banks do so only £85,000 is protected across those banks for individuals, not £85,000 in Lloyds and £85,000 in Halifax.
On our website, we are developing a banking directory which will ultimately cover all banks, but is starting initially with many of the smaller and new entrant banks. This will cover whether they are FSCS protected, if they have their own banking licence, where they lend their money, how big they are, savers feedback and other useful information to help savers decide whether they are a bank they wish to save with.
I’d love to hear your feedback on this and whether there are other criteria that will help you or that you’d like to see included so please do take a look and let me know your thoughts!
Current account savings rate changes
Savings rates aren’t the only thing to be hit this month. There’s also been a plethora of reductions on interest rates paid on current accounts. There are now only two accounts paying better interest rates than the best easy access savings accounts – Nationwide and TSB. Nationwide continues to pay 5% on balances of up to £2,500 in its FlexDirect account in the first year, after which it drops to 1%.
TSB pay 3% on their ClassicPlus on balances up to £1,500. However, many haven’t forgotten the problems that dogged TSB’s internet banking last year and the aftermath of it.
If you are not in one of those accounts, then your rate on any balances in your current account is less than the 1.50% being offered by Virgin Money and Marcus on their easy access accounts. Both can be opened with £1 so I’d highly recommend looking at opening one and earning yourself some extra interest!
That’s all for this month. If you don’t want to wait for next month’s update, then you can subscribe to our newsletter by submitting your email address on our website!