Savings update: no improvement on horizon as rates continue to fall
Rates on fixed–rate bonds continue to fall, with French-owned RCI Bank cutting its one-year rate to 1.75% before tax (1.4% after) for new savers, down from 2.01% (1.72%).
The top one-year rate is 2% (1.6%) from Swedish-owned Ikano Bank or 1.76% (1.41%) from Charter Savings Bank.
For two years you can earn 2.15% (1.72%) with RCI Bank or Ikano Bank or 2% (1.6%) with United Trust and Paragon banks.
The best easy-access deal is the online RCI Bank Freedom account at 1.55% (1.24%). Virgin Money Defined Access pays 1.31% (1.05%) but you are limited to making three withdrawals a year. Shawbrook Bank Easy Access 3 offers 1.3% (1.04%) with no withdrawal restrictions.
Compare savings accounts and cash Isas with our tool.
There is no sign that cash Isa rates are going to improve in the run up to the end of the tax year on 6 April.
Among the top easy-access rates is Coventry Building Society at 1.4% tax-free.
Post Office pays a marginally higher 1.45% but this includes a bonus for the first year after which the rate drops to 0.65%. Virgin Money pays 1.41% but restricts you to three withdrawals a year.
On fixed rate cash Isas the best you can do is 1.5% for one year with Virgin Money, Aldermore and Shawbrook banks. Kent Reliance, Aldermore and Metro banks all pay a top 1.75% for two years.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.