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Growing competition = rising savings rates!

Growing competition = rising savings rates!

Category: Savings

Updated: 22/07/2015
First Published: 22/07/2015

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Savers, we have some good news – average rates across the fixed savings market have ALL increased for the first time since September last year!

Our figures show that the average one-year and long-term fixed rates both increased by 0.02% this month to stand at 1.42% and 2.00% respectively, while in the cash ISA sector, the one-year rate rose by 0.01% (to 1.44%) and the long-term fixed ISA rate saw the largest increase of 0.03%, now standing at 1.84%.

Significantly, it marks the first time that all fixed rates have increased since September last year, and it's only the second time the pattern has been repeated since 2011. Granted, the increases are still small, but any improvement is welcome in such a subdued market – and much of the thanks can go to challenger banks.

Challengers are taking control

Challenger banks may be small, but they're making themselves known in the savings market. In fact, it's because they're so small that they're having such a positive impact on savings rates – newer banks still need to raise capital to build their balance sheets, and they do that by encouraging savers to bank with them, offering a premium in order to attract that kind of business.

Conversely, high street banks have no need to compete for savers' cash, hence their absence from the best buy charts. As a result, challenger banks are creating their own market, with a definite split appearing between them and mainstream providers, and it's in this challenger bank sub-sector where competition is intensifying – and where rates are increasing as a result.

Just take a look at our best buy charts and you'll see what we're talking about. You'll notice a distinct lack of well-known names, and instead, these newer, smaller providers are continually overtaking one another to get to the top of the charts in specific sectors. This month, competition is concentrated in the fixed sector, replacing last month's focus on notice accounts, and although it's taking time to filter through into the market as a whole, any improvement is worth noting.

Signs of life in the easy access market

In even better news, our latest data reveals signs of life in the easy access market, too, with several accounts racing for the top spot. Just this week, RCI Bank UK increased the rate on its Freedom Savings Account by 0.15% - now paying 1.65%, this saw it leapfrog Virgin Money's Defined Access account paying 1.51%, which only stole the crown from RCI a week ago. It's all going on!

We'll get a better understanding of whether or not this competition has had an impact on easy access rates when we analyse the market in a few weeks' time, but for now, it's time to make the most of it! Challenger banks may be less well-known but that doesn't mean they should be overlooked, and with such great rates on offer – and the same kind of financial protection as high street banks – they're well worth considering. So, check out the new kids on the block, and see if you can benefit!

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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