Charter Savings Bank has launched a new best buy one-year fixed rate paying 6 per cent.
The best buy deal overtakes Vanquis Bank’s 5.9 per cent at the top of the independent This is Money’s best buy savings tables.
Someone putting £20,000 in Charter’s account could expect to earn £1,200 of interest over one year.
Flying high: Charter Savings Bank has launched a new best buy one-year fixed rate paying 6 per cent.
Savers’ deposits are protected up to £85,000 per person by the Financial Services Compensation Scheme, the UK’s deposit guarantee scheme.
The account can only be opened online and savers will need a minimum deposit of £5,000 to get started. Thereafter they can deposit up to a maximum of £1m.
Interest will be paid annually on the anniversary of the initial deposit. No withdrawals are permitted during the fixed-rate period.
Charter has also launched a new best buy two-year fix paying 6.1 per cent, which is the highest paying deal of any fixed rate deal on the market at present.
Someone putting £20,000 in its two-year fix will earn £2,440 of interest over the 24 month period.
When will it stop? Lately, savings rates across the market have been rising across the board.
However, savers putting such large sums in either account will likely face tax bills.
This is because the personal savings allowance only permits basic rate tax payers to earn £1,000 interest free each each tax year, while higher rate taxpayers only get a £500 allowance and additional rate taxpayers get no allowance at all.
Some savers may therefore prefer to opt for Charter’s new one-year fixed rate cash Isa which is paying a market leading 5.2 per cent.
All interest earned is tax free meaning that this may prove more lucrative for some higher rate and additional rate taxpayers.
James Blower, founder of website, Savings Guru, says savers need to start seriously considering the tax implications of using standard savings accounts.
He warns: ‘A higher rate tax payer putting £20,000 in to the Charter 6 per cent deal will earn £1,200 interest per annum which will attract a tax bill on the £700 (assuming they aren’t using personal savings allowance anywhere else) – that’s £280 of tax bringing the return down to £920.
‘The same in one of the best one-year fixed rate cash Isas will earn 5 per cent or more and will therefore earn over £1,000 a year with no tax.
‘So, despite the rate differential, the tax situation will change things significantly for some savers.’
Are we reaching a peak for savings rates?
Savings rates have been rising at an almost relentless pace in recent weeks, with providers seemingly clambering over one another to seize top spot on best buy lists and entice savers.
This month alone, one of the competing challenger banks, Smartsave upped its one-year fixed rate 14 times as it bid to be market leader.
On current evidence, it’s hard to call when the savings frenzy of new best buy deals will taper off.
Savings rates have been rising at an almost relentless pace in recent weeks, with savings providers seemingly clambering over one another to seize top spot on best buy lists.
However, Anna Bowes, rate scrutineer and co-founder of Savings Champion believes we may now be nearing the peak for fixed rate savings deals.
This is because banks have been prepared to up their rates thanks to market expectations about where the Bank of England base rate will peak.
These expectations are reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange a stream of future fixed interest payments for another stream of variable ones, based on a set price.
Swap rates have risen recently, in part, because inflation is proving stickier than expected and markets now expect the Bank of England to increase the Base rate to either 5.75 per cent or even 6 per cent later this year.
Bowes says: ‘With one-year swap rates still rising and currently at 5.836 per cent, there could be more to come, but we’re possibly near the top now.
‘And it’s interesting that the five-year swap rates are lower – currently 4.904 per cent, which indicates that the base rate will peak and then fall away somewhat in the near future.
‘So savers could consider locking some of their cash up for a bit longer at the rates that are currently available, as in a year’s time, rates could be lower.’
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