Best fixed savings accounts: One year deals go beyond 2%

One-year fixed rate savings deals have hit the highest levels seen for three years after six providers upped rates to pay 2 per cent or more.

Savers prepared to lock away their cash for 12 months can now secure a rate more than three times the level they could have last year.

Al-Rayan Bank leads the way with a 2.11 per cent rate for its one-year account. 

Someone stashing £10,000 in this account could expect to see a return of £211 over the course of the year. 

Kent Reliance and Charter Savings Bank, both owned by One Savings Bank, are offering savers 2.05 per cent on either platform, while Investec is too.

They are closely followed by Gatehouse Bank and Cynergy Bank, which are both paying 2 per cent.

Last April, the best paying one-year fix – offered by Charter Savings Bank – paid just 0.61 per cent.

Savvy savers looking to make their money work even harder can also pick the Charter Savings Bank deal via the savings platform Raisin.

Those who sign-up for the first time via Raisin and deposit at least £10,000 into the account can secure a £30 welcome bonus – available until 29 April.

Someone depositing £10,000 could therefore essentially secure a rate of 2.35 per cent, or £235. 

Why are rates soaring higher? 

Since last April, savings rates have been edging upwards – although at the same time, inflation has been soaring and is now hit 7 per cent. No rate can get close to this. 

The average one-year deal has risen from 0.43 per cent to 1.2 per cent during that time, according to Moneyfacts.

However, in recent months, savings rates have been rising faster, in part thanks to three quick fire base rate rises by the the Bank of England. 

The average one year deal paid 0.84 per cent as of 16 December last year – the day the bank of England upped the base rate from 0.1 to 0.25 per cent. It has since risen to 0.75 per cent. The average one year deal now pays 1.2 per cent.   

Although the base rate is partly responsible, the rate war at the top of the market is also being fueled by challenger banks attempting to raise money in order to fund acquisitions. 

Masthaven Bank, which is withdrawing from the UK banking market over the next two years is one such target. It is selling all its loan books, which other challenger banks will be looking to acquire.

James Blower, founder of The Savings Guru said: ‘Both Kent Reliance and Charter Savings have taken market leading positions across one, two and three year fixed rates so clearly are pushing to bring in some money. 

‘We know that Masthaven Bank is being wound down and that their lending books are up for sale. 

‘We also know that Jon Hall, ex Masthaven chief commercial officer, has been appointed mortgage director at One Savings Bank, so I’d be incredibly surprised if they are not in the process to acquire those lending books from Masthaven. 

‘I suspect they are raising deposits to fund that lending should they be successful in acquiring it.’

What next for rates?

Rates are likely continue moving upwards – driven by competition between challenger banks and further base rate rises, which are expected in the near future.

This means savers may be wary of locking into fixed rate deals when an even better rate might be just around the corner.

For those weighing up a fix, the advice is to do so for no more than a year.

Blower adds: ‘One year fixed rates are now at the highest levels since April 2019 and I can only see them continuing upwards for now. 

‘I suspect that, once the acquisition activity,  which is driving rates upwards, has finished, the market will stabilise and the rate of increases will slow. 

‘Calling when that will be is really hard though and, while there is scope for rates to continue higher in the short term, I don’t think it’s going to race away from this point. 

‘I’d certainly suggest to savers not to lock up beyond one year – with one year best rates at 2.05 per cent and five year best at 2.5 per cent there’s not enough premium to justifying doing so in a rising rate market.’