Savings rates break the 7% barrier

Rachel Thrussell, Head of Savings at Moneyfacts.co.uk, comments: “The saving frenzy of last week has continued at full strength. Today sees fixed rates top 7% for the first time in over 6 years.

“With the top rate available rising by over 0.35% in the last two weeks alone, yet with money markets remaining much less volatile there must be other forces at work. With little to differentiate between fixed rate bonds, rate really is the key feature and with so many providers desperately seeking the top spot in the charts, there is a fiercely fought contest to win our savings.

“In last two weeks over 20 providers have increased their fixed rate offers. The last two days have seen another turnaround of best buy rates.

“It’s been quite some time since we have seen the market move at such a pace. In just two weeks an investor looking to secure the best fixed rate deal would have missed out on £35 interest on an investment of £10K over one year.

“With the credit crunch still biting the mortgage market, and with news that Victoria Mortgages has gone into administration, the increased LIBOR rate certainly reflects the banks’ cautious attitudes to lend to each other. With rates rising by over 1.5% since the start of the year, with almost a 1% rise in the last two months, there are definite signs of uncertainty. Lenders are looking for alternative ways to fund their mortgage lending, and it seems as if increasing deposits has been the first port of call for many.

“With savings rates reaching such heights, the traditional advice to overpay as much on your mortgage as frequently as you can may have gone out of the window. If you were lucky enough to secure yourself a cheap rate mortgage, it may make sense to invest in a 7% one-year bond, making one off lump sum payments if your mortgage permits.

“A return of 7% is quite outstanding. It’s a great time to review your finances and bag yourself a great deal. But with rates also still remaining competitive in the ISA market, savers would still be wise to explore their tax-free options first.”