In a move that can be interpreted as a challenge to other financial services providers, Northern Rock has recently announced it will boost the interest rate on its one year fixed-rate bonds to 3.15 per cent.
The new rate has rocketed the personal and business bank account provider to the top of the best buy tables for one year fixed rate savings accounts, unseating previous title holder Coventry Building Society, which only carried a 3.11 rate on their bonds.
New levels of competition are bound to be welcomed by savers with bonds facing maturation, since many face as much as a 40 per cent drop in incomes due to a sluggish fixed-rate bond market.
One prominent example of this is the maturation of a 3.3 per cent fixed bond from Skipton Building Society which just occurred. Its initial offering was cut short after just five days on the market, mostly due to overwhelming demand from savers on the hunt for good deals.
The rate Skipton offers on its one-year fixed bonds has now been reduced to just 3.05 per cent, resulting in a third place showing on the best buy tables.
Since it has upped its bond rate, Northern Rock holds the top spots both there and for its fixed ISA offering, which tops the list with a 3.05 per cent interest rate.
After taking into account the basic rate tax, the bond delivers a return of 2.52 per cent. Taxpayers subject to the higher rate will see that figure reduced further to a 1.89 per cent annual return.
While the rate is top of the current list, it still doesn’t come close to meeting or beating the current inflation rates in the UK. The cost of living has been rising at a quicker pace than the Government and the Bank of England would like.
During the past month, the Government’s inflation measure, the Consumer Price Index, has remained once again at 3.1 per cent. This exceeds the government’s target number of 2 per cent. As a result, savers are finding it harder and harder to keep their hard-earned cash as their interest returns are eroded by runaway inflation.