Bank raises interest as savings deal takes a ‘top rate’ position | Personal Finance | Finance

Investec increased the interest rate on its Fixed Rate Saver account yesterday, boosting the account from 1.33 percent to 1.36 percent AER. This rise meant the account was named a “Pick of the Week” for savings accounts by money comparison website Moneyfacts.

The Fixed Rate Saver account

Investec explained the Fixed Rate Saver provides simplicity and security for savers and pays an attractive rate of return over a one-year fixed term. It now pays an interest rate of 1.36 percent AER on balances of between £5,000-£250,000, with automatic repayment to a linked current account.

Interest is paid at the end of the term. No withdrawals are permitted until the end of the one-year period, and no further deposits can be made after the first seven days.

Investec currently has two online savings accounts available and an Online Flexi Saver is also available for those who are looking for flexibility over higher interest rates.

The Online Flexi Saver currently pays 0.58 percent on balances between £5,000 and £250,000. Savers will be able to instantly access their savings with this account and unlimited deposits and withdrawals can be made.

Eleanor Williams, a Finance Expert at Moneyfacts.co.uk, reviewed this increase and broke down how savers could benefit.

READ MORE: NS&I cancels Premium Bonds prizes as savers unwittingly break rules

She said: “Investec Bank plc has increased the rate paid on its one Year Fixed Rate Saver by 0.03 percent this week. Now paying 1.36 percent on maturity, this account takes a place within our top rate table when compared to other bonds with similar terms which are currently available.

“This account can be opened and managed online and could be tempting to savers happy to secure their savings pot away for the one-year term.

“As may be expected in the fixed bond sector, early access is not permitted, however, some investors may view the ability to make further additions for seven days from account opening as a plus. Overall, this bond secures an Excellent Moneyfacts product rating.”

On top of the Investec account, Ms Williams also identified the Chorley Building Society Easy Access Saver account for offering a decent option for savers.

She explained: “Savers who like to maintain some flexible access to their nest egg may be pleased to note that Chorley Building Society has launched a new Easy Access Saver this week. Paying a rate of 0.60 percent yearly for those who make up to six withdrawals per annum, this account takes a place in our top ten when compared to other no notice accounts currently available.

“Savers should note that while further additions are permitted, if more than six withdrawals are made, the rate paid will reduce, so careful planning may be advised.”

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NS&I and fixed bonds

A number of savings changes have been issued by NS&I in recent weeks, which is among the UK’s most well known savings institutions and is often used as a barometer for the wider market. The organisation raised rates on its own savings bond product in recent weeks, following a number of cuts made in late 2020.

In mid-November, NS&I announced a rate increase on its income bonds, from 0.01 percent to 0.15 percent. Derek Sprawling, savings director at Paragon Bank, commented on the potential impact this could have on the savings market.

He said: “NS&I has increased the rate of interest it offers on its income bonds from 0.01 percent to 0.15 percent. These rates are likely to be disappointing for savers as they are not competitive. Customers can earn at least four times more in interest by choosing an easy access product that is in the best-buy tables at the moment.

“It is likely that this move will cause withdrawals, opposed to attracting new customers. This could have an impact on the market as providers might increase rates in order to be in the best position to attract those deposits, or equally, it could mean that best-buy products attract a surge of new funds and end up being withdrawn from the market very quickly.”

Mr Sprawling said it’s important to note that NS&I’s income bond value grew between March 2020 and March 2021, despite many customers flocking to NS&I last year when its rates were market leading, and withdrawing their money when the rates were reduced.

This, he argued, showed inertia is still a significant force in the market and many continue to receive a very low rate of interest on their savings.

Mr Sprawling continued: “The potential impact of this latest rate change on the market is combined with the fact we are reaching the anniversary of NS&I’s rate reduction last year.

“This could also generate a wave of outflows into the market, as a cohort of customers who left NS&I last November will have taken out a one-year fixed rate bond, with those funds now coming to maturity.

“Those customers will now be looking for a reinvestment option and this is likely to be in the fixed rate bond space.”

Savers who are keen to get better returns may have no option but to invest in long-term fixed accounts as average no notice deals continue to struggle.

No notice savings rates

Today, Moneyfacts also released data on the latest average no notice savings rates. The average rate is now sitting at 0.193 percent.

For comparison, it sat at 0.1977 percent on the same date in 2020 and was closer to 0.7 percent in January 2016.

Interest rates across the savings spectrum are unlikely to get much higher than one percent at the moment as the Bank of England recently elected to keep the base rate at 0.1 percent. This decision surprised many financial experts who expected the central bank to raise rates in light of skyrocketing inflation, which is now sitting at 4.2 percent.

However, the next base rate decision falls on December 16 and many believe rate hikes are still likely before the year is out. The Bank of England has warned inflation could rise even further to five percent in early 2022, leaving it with no choice to raise rates in an effort to protect the economy.



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