Tandem Bank has boosted the interest on its easy-access savings account to 5%, the highest rate of return on such an account since January 2009, according to Moneyfacts.
On the back of the Bank of England's most recent interest rate hike, challenger bank Tandem has adjusted its Instant Access Saver to pay out 4.65% AER, plus a bonus 0.35% AER for 12 months. This is the first time in 14 years that savers have been able to guarantee such a rate of return from a savings account without needing to commit to locking their money away.
To get the full 5%, savers will need to open an account on the app and click the 'top up' button. This will add an extra 0.35% AER to their rate. Unfortunately, 5% is still slightly below the Bank of England base rate of 5.25% and well below latest inflation figures.
While Tandem may be a relatively unknown name to the wider public, it launched all the way back in 2014 and is a registered UK bank, which means that any savings held are protected up to £85,000 per person by the Financial Services Compensation Scheme (FSCS).
Tandem users can also benefit from no minimum deposit, no limits on withdrawals and a high maximum deposit cap of £250,000. Keep in mind that Tandem is app-only, so there is no branch for you to visit and all of your banking will need to be done through your phone. The headline rate is variable, so it could go up or down in future.
This new ground broken by Tandem also comes hot on the heels of the recent rate increase on the Premium Bond prize fund – its highest since 1999.
Why do interest rates matter?
The interest rate paid on your savings is the amount the bank or building society is willing to pay you to hold your money. The higher the rate, the more money you get simply from leaving your cash in the bank.
It also takes on a second layer of importance when you think about inflation. Inflation is the erosion of the value of money – each pound you own buys you less and less each year. By building up your savings year on year through interest, you are doing something to counteract the negative effect of inflation on your money.
Will interest rates go up even higher?
Savings rates are influenced by the Bank of England base rate, which recently rose for the 14th consecutive time to 5.25%. If there is another Bank of England base rate rise, you might expect savings rates to logically follow. However, it is up to the individual bank or building society to raise the rates on its accounts. Some organisations will take weeks or months to boost rates following a base rate change, while others may choose to not increase savings rates at all.
This means that it is important to keep an eye on how interest rates on savings accounts are changing, shop around for the best deal and make sure your money is working as hard as it can.
What are the best savings accounts
We monitor the best interest rates on savings account and update our best buy tables regularly. You can take a look at the best options for easy access accounts on our 'Best Easy Access Accounts in the UK' page.
If you are looking for a notice account, a cash ISA, a fixed-rate bond or any other type of savings account, check out our 'Best savings accounts in the UK' roundup.
