Savers can now earn 5 per cent for the first time in almost 11 years, after Atom Bank launched a new best buy five-year fixed rate deal.
The online challenger bank’s five-year fix is the highest paying savings account since February 2012, according to Moneyfacts.
Savings rates have been on an upward trajectory over the past year. However, in recent months, rates have seemingly been turbocharged.
>> Check our independent table of best buy savings rates.
Rocketing: The 5% deal is the highest fixed rate savings account seen since February 2012
Only three weeks ago we reported the best fixed savings rate had breached the 4 per cent barrier.
Atom’s deal calculates interest daily and pays out monthly. Savers can choose to have interest paid into their account or paid into their nominated bank account with another bank or building society account. Those opting for the latter will earn slightly less interest overall.
Someone depositing £10,000 into this account could expect to earn £2,763 in interest over the five year period.
Meanwhile depositing £50,000 in this account would mean £13,814 in interest after five years.
It’s worth pointing out that based on the current 9.9 per cent rate of inflation, savings fixed at 5 per cent will still be losing value in real terms.
Savers can open the Atom fixed rate account by signing up using its mobile app and depositing £50. They can then save up to a maximum of £100,000.
Any savings held with Atom are protected up to £85,000 per person by the Financial Services Compensation Scheme.
Should you sign-up?
Savers will be tempted by the headline rate and the fact it has been so long since we last experienced a 5 per cent savings deal.
This account will only appeal to savers who want to lock their money away for a long period of time.
Rachel Springall, a personal finance expert at Moneyfacts says: ‘Savers feeling unsettled about the wider markets with their investments may be enticed by a 5 per cent cash savings rate, which is guaranteed over the next five-years and the highest fixed bond rate we’ve seen in a decade.
‘As it stands there may well be further improvements to the fixed bond market, but as we have seen before, market-leading rates don’t always last very long as they can become subscribed very quickly.
‘If savers feel they may need their cash sooner, they may be wiser to spread it across a shorter-term fixed bond and an easy access account – but also consider any Isa allowance or Personal Savings Allowance they have amid rising rates to protect their savings interest from tax.’
Coventry Building Society has a new one-year fixed bond paying 4.4% with a minimum £1 deposit and is available online, by phone, post or in branch
As a long term investment, some savers may deem a 5 per cent five-year fix as a safe bet given the current economic climate.
While savings rates may still fall short of the headline inflation rate, it is starting to compare reasonably favorably against annual payouts of income funds and investment trusts, with the FTSE 100 yielding roughly 4 per cent.
Savers going into cash will not get to benefit from potential gains from rising share prices, but a 5 per cent interest rate return is an almost risk-free option if held in a FSCS protected savings account, whereas stock market investing involves the potential for investments to fall as well as rise in value.
Best buy rates
Top easy-access: Santander – 2.75%
One-year fix: Aldermore* 4.35%
Two-year fix: Cahoot – 4.7%
Three-year fix: Coventry Building Society – 4.85%
Five-year fix: Atom Bank – 5%
Easy-access Isa: Coventry Building Society – 2.25%
Best fixed Isa: Santander two-year deal – 4.2%
Note: Products featured in this article are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.
Mike Stimpson, partner at the wealth management firm, Saltus says: ‘Fixed deposits provide a relatively safe return. We always consider whether a client’s objectives can be met using safe investments before recommending anything riskier.
‘However, client circumstances change. Many want to access capital at short notice, or to flex their income up or down. These objectives are unlikely to be met with fixed deposits but could be with an investment portfolio.
‘We also advise that all tax regimes are considered, including capital gains, dividend, and savings interest.
‘Additionally, many of our clients invest to increase what they can spend in retirement or pass on to loved ones, which may be better achieved with a diverse investment portfolio.’
There is another one key factor that may hold savers back. Savings rates continue to rise higher and the pace of chance doesn’t appear to be slowing either.
Yesterday, Santander launched a new best buy easy-access deal paying 2.75 per cent, whilst Coventry Building Society this morning launched a range of one-year, two-year and three-year fixed rate options paying between 4.4 per cent and 4.85 per cent.
Essentially, savers can grab a fix for two years less than this Atom deal, and forfeit 0.15 percentage points of interest.
>> To stay up-to-date with the best rates as they happen, sign-up to our savings alert service.
Over the past 12 months, the average easy-access savings rate has risen roughly five-fold from 0.18 per cent to 0.99 per cent, according to Moneyfacts.
One-year fixed rates have also risen from 0.76 per cent to 2.68 per cent during that time.
It is therefore likely that many savers will be taking a ‘wait and see’ approach based on the assumption that better deals are still to come.
Anna Bowes, co-founder of Savings Champion says: ‘This is another breakthrough with a bond paying 5 per cent – the first time in well over a decade.
‘That said, few people are likely to want to lock their money up for 5-years while they can see rates continuing to rise.
‘We will only know with the benefit of hindsight whether taking advantage of this rate now would be a prudent move.’