Savers look set to benefit from heightened competition in the savings market, following Alliance & Leicester's decision to increase the rate on its instant access deal.
New customers will earn 6.56% AER on their savings after Alliance & Leicester increased the rate on its eSaver account. The minimum deposit is £1.
The downside of the new deal is that the rate includes a bonus of 0.94% AER until 7 December 2009, plus there are some withdrawal restrictions with no interest earned in months when money is taken out. The exception is July, where withdrawals can be made with no loss of interest.
Hetal Parmar, manager for savings at Alliance & Leicester, says the withdrawal restrictions are designed to encourage people to save for the long-term.
"eSaver is designed like an old fashioned piggy bank - you can put money in whenever you like - but it is not for those who want to regularly dip into their savings,” adds Parmar.
Saving experts say the move by Alliance & Leicester indicates its appetite for new business – and could spark a flurry of interest rate rises as other providers attempt to compete.
Kevin Mountford, head of savings at moneysupermarket.com, says the move could represent the first stage of a comeback by UK banks after a period of foreign providers offering the top accounts.
“The bigger picture is what it means in the battle between foreign and UK banks for savers' cash,” he adds. “The recent increases from Kaupthing on easy access and ICICI on bonds caught the market a little cold, raising the bar with 7.2% and 6.55% respectively.”
And although Alliance & Leicester is likely to become a foreign bank in due course – assuming the proposed buy-out by Santander goes ahead – Mountford believes the savers shouldn’t be concerned.
"A&L, in its current form, is showing no sign of reining in its desire to acquire new business,” he says.
Many savers are currently opting for fixed-rate accounts in order to avoid the negative impact of potential interest rate cuts. However, if you want an account where you can access your money if necessary, then instant access deals are ideal. To find the best saving deals, read our daily round-up of the top accounts from fixed-rate to instant access.
Meanwhile in the ISA market, the Post Office has just launched a new variable rate ISA with an interest rate that places it among the best products out there.
Paying 6.25%, the Post Office’s new ISA guarantees to track changes in the Bank of England base rate until 1 January 2010 with the interest rate never falling more than 1% below the base rate.
The minimum deposit is just £1, and transfers are accepted.
Richard Norman, director of savings at the Post Office, says: "There are an estimated 12 million cash ISAs in the UK and with many people reluctant to invest their money into equities at the moment there is a bigger demand for cash savings products, including cash ISAs."
To compare the Post Office ISA with other deals on the market, read our daily round-up of the market.