Bank's savings rate passes 7%

30 April 2008 03:16pm

Savings rates have broken through the 7% barrier with the launch of a new bond from Icelandic bank Icesave.

The group, which is part of Landsbanki, is offering a rate of 7.01% on its one-year fixed rate bond.

It is thought to be the first time that returns on savings accounts have breached the 7% barrier since September last year, when the Bank of England base rate was 0.75% higher.

While the credit crunch has been bad news for borrowers, it has been good news for savers.

Problems in the wholesale money markets mean banks and building societies are increasingly reliant on money they can get through the door from savers to fund mortgage lending.

As a result the savings market has become increasingly competitive in recent months.

Commenting on the launch of the Icesave bond, Kevin Mountford, head of savings at Moneysupermarket.com, said: "This is just a continuation of what we have seen in the past few months, where retail banks are keen to get savers' money.

"It has been widely reported that banks are keen to focus on fixed rate products in order to lock in cash. The overseas banks, which generally have a lower cost base than UK banks, are able to reflect this in more aggressive pricing."

He added that some other banks were likely to follow suit and also offer products at above 7%.

To take advantage of the Icesave deal, savers need to invest a minimum of £1,000. They will receive a return of 7.01% if interest is paid on maturity or 6.79% if it is paid monthly.

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