It's a week of good news for savings accounts. Following Monday's revelation that fixed bond rates have recovered from the base rate cut, our latest figures reveal that the number of savings accounts has risen to a near five-year high on the back of rising competition, which means you've now got plenty of options if you're looking for a new home for your hard-earned cash – and it's all thanks to challenger banks.
Figures from the latest Moneyfacts UK Savings Trends Treasury Report reveal that, as has been the case for several years now, competition in the savings sector – and the resulting rate boost – is being entirely driven by challenger banks, with new launches pushing the number of products to unexpected levels.
There are currently 1,763 savings accounts available, an increase of 42 from last month and the highest figure seen since November 2012, when 1,807 accounts were on the market. Much of this has been the result of new providers entering the market, with 122 now active in the sector, an increase of two on a monthly basis and the highest number of providers seen since August 2009 (when 122 were also active), surpassing last month's post-crisis record.
The two new providers entering the market this month are Moneycorp Bank and Wyelands Bank, with the latter making itself particularly known in the fixed rate bond sector – Wyelands' one and two-year bonds have both earned coveted positions in the Best Buy charts, paying rates of 1.83% and 2.00% respectively, easily competing with their peers.
Yet more challenger banks launched new products and raised rates in the last month, including Atom Bank, Ikano Bank, Investec Bank plc and Ford Money, whose easy access deal and short-term ISAs all comfortably take their place in the charts.
You only need to take a quick glance at the best savings accounts on the market to see a distinct lack of big names, with mainstream banks simply not wanting our cash. But why?
It's a good question, and one that has a fairly straightforward answer – it's all because the main banks have been able to utilise the Funding for Lending Scheme (FLS) and the more recent Term Funding Scheme (TFS), which both give providers access to cheap money that they can lend out in the form of loans, meaning those banks no longer need to rely on cash deposits to fulfil that purpose.
The Bank of England's latest update reveals just how much banks have been relying on these schemes – participants have drawn a total of £123bn from both stimulus packages, with the biggest users of the more recently introduced TFS being RBS, Lloyds Bank Group (which is also the biggest user of the FLS), Barclays Bank, Nationwide and Santander.
This could explain their lack of appearance in the Best Buys, as they already have all the cheap money they could want. Unfortunately, this pattern looks likely to continue, particularly as providers have four years in which to repay the funds they've borrowed; the TFS is set to be closed from February next year, meaning providers active in the scheme could have no need to compete for savers' funds until 2022.
Which is why you need to give challenger banks a chance! These banks come with the same financial protection as their better-known counterparts, so although you may not be as familiar with them, you needn't worry about your money not being safe. Start comparing savings accounts using our Best Buys, or head straight to our savings account search tool to find the one that meets your needs, and see if these challenger-led accounts are worth considering.
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.