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Best savings rates: QIB UK and United Trust Bank launch best buy fixed rate bonds

Signs of ‘light green shoots’ amid the savings boom as challenger banks launch new best buy interest rates

  • Savings rates on all accounts have collapsed since March due to the corona virus
  • In recent weeks, some banks have raised their fixed interest rates
  • Experts say these “baby steps” suggest a “slight upswing” in fixed income bonds

Savers have received a small dose of good news, as smaller banks with a challenger have raised the rates they pay for term deposits in recent weeks.

Sharia bank QIB UK launched best buy bonds with a maturity of one and two years with interest rates of 1.2 and 1.4 percent respectively, while the United Trust Bank has raised interest rates on a range of fixed income bonds since late July.

It now offers the best 18 month deposit and pays 1.15 percent.

Signs of life in the savings market? New best buy fixed rate deals have recently been launched

Signs of life in the savings market? New best buy fixed rate deals have recently been launched

Experts said there were signs of a “slight resurgence” in fixed income bond offerings after interest rates fell to an all-time low this year due to the corona virus crisis.

Easily accessible savings rates have stabilized in recent weeks, although they are still at an all-time low, with National Savings & Investments pushing the best buying charts with its income bonds paying 1.15 percent and the direct saver paying 1 percent.

But while those rates have remained the same, challenging banks competing for depositors’ money have recently started to push up rates on short-term, fixed-term deposits. Previously, savings rates had gone in only one direction.

In January, the average one-year fixed-rate bond paid 1.2 percent, but by mid-July, it had fallen to 0.7 percent, according to Moneyfacts, without a bank paying 1 percent on a 12-month fixed rate.

And the average interest rate on deposits with a fixed term of 18 months or more fell from 1.48 percent to 0.92 percent in the same period.

How fixed-rate savings fell in 2020
MonthAverage one-year fixed rate bondLong-term average fixed rate bond
January 20201.2%1.48%
June 20200.86%1.05%
July 20200.7%0.92%
Source: Moneyfacts (rates correct as of July 14, 2020)

“There have been encouraging signs of competition in recent weeks,” said Anna Bowes, co-founder of analyst Savings Champion.

QIB UK’s accounts pay an expected rate of return instead of interest, which means the return may be lower than expected, although savers usually receive the nominal rate.

They can be opened via savings platform Raisin with £ 1,000 and deposits are covered by the Financial Services Compensation Scheme up to £ 85,000.

Newcomers to Raisin who open their first account with a £ 5,000 deposit for next Monday will also receive a bonus of £ 10, increasing the rate paid on the fixed interest rate for one year to 1.4 percent and to 1, 51 percent for the two-year.

Deposit protection scheme extends temporary protection:

The Financial Services Compensation Scheme from Thursday extends the period for savers to benefit from temporary savings coverage of up to £ 1 million.

The FSCS usually protects deposits up to £ 85,000 if banks go bankrupt, but this is increased to £ 1 million for six months for those with temporarily higher balances.

These credits are covered if they result from life events such as an upcoming home purchase, divorce, layoff or the death of someone.

The six-month period runs from August 6 to February 1, 2021 to 12 months.

Caroline Rainbird, CEO of FSCS, said, “The coronavirus pandemic is very worrying for everyone, and people are understandably concerned about the possibility of losing their temporary high balance if their depositor fails.

“The temporary extension of FSCS protection from six to twelve months will reassure them a lot if the worst happens in these uncertain times.”

Deposits at United Trust Bank meanwhile can be opened with £ 5,000.

His one-year fixed rate pays 1.1 percent and his two-year interest rates 1.2 percent, good enough for second place in This is Money’s best buy tables.

It has been steadily raising these rates since July 22, when it launched its one-year bond at 0.85 percent and its two-year fixed rate at 1.05 percent.

A week later, the Charter Savings Bank jumped too quickly after it introduced a year’s own fixed rate, which paid a then-best buy rate of 0.91 percent on balances of £ 5,000.

Bowes added, “We haven’t seen small fights like this in a while, so while these are baby steps, it’s still good news and we can only hope these sparks ignite to sustained and significant levels of competition.”

Kevin Mountford, chief executive of Raisin UK, warned that top deals like this won’t last long because ‘banks will only increase what they need’, but he said there were ‘light green shoots of recovery’ when fixed income bonds came out .

He said, “Some banks are starting to see an increasing demand for loans to support growth,” meaning smaller banks had to get more money from savers.

“We should hope that lending continues to grow, but there are some positive signs for savers,” he said.

While savers should not consider fixing interest rates for more than two years, two fixed one-year interest rates that pay more than 1 percent and a two-year interest rate fix at 1.4 percent could cause some to consider fixing their money to hedge against easily accessible rates continue to decline.

That will almost certainly happen if NS&I, which has withdrawn billions of pounds from savers since March, announces to cut its best buying rates.

Anna Bowes said that while it was nearly impossible to know what would happen to the savings interest afterward, she recommended savers diversify their money, with some having a fixed income bond for some security and the rest in an easily accessible account, giving them an advantage if rates continued to improve.