Two challenger banks hike their one-year fixed savings rate - should you fix your cash?

After months of falling rates, a pair of challenger banks have boosted the rate on their one-year savings accounts. How does this compare to the rest of the market and will other providers follow?

Stack of silver coins with an increase arrow on the table. Financial investment concept
(Image credit: leolintang)

Optimism in the savings market may be returning, as a surprise uplift today (12 February) by two challenger banks, SmartSave and Allica Bank, means you can now earn up to 5.21% on a one-year fixed saver. 

This follows a fall in interest rates on the best savings accounts as the average fixed savings deal showed its biggest decline since 2009 in December.  

Challenger banks like SmartSave and Allica have been strongly competing with the traditional high-street banks, and making a space for themselves on our best-buy tables. We’ve seen it with Metro Bank’s 5.22% easy-access saver and its 5.91% one-year fixed account - although these top rates don’t hang around for long, and both have now been pulled. 

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And even though the new best-buy doesn’t match NS&I’s attractive 6.2% one-year fixed bond, which was on sale last year, it still remains highly competitive compared to the rest of the market today.

Rachel Springall, finance expert at Moneyfacts, says this could be the catalyst for more good news: “Challenger banks are adjusting their market positions and will likely keep a close eye on their margins compared to their peers in the coming weeks.”

Find out how the two challenger banks’ fixed rates compare to the rest of the savings market, and if you should fix your cash. 

Two challenger bank’s boosts one-year fixed savings rate

SmartSave currently tops our best-buy table with its 5.21% AER one-year fixed saver, which was hiked from 5.18% AER today (12 February).

Allica Bank now sits second on our best-buy table after it upped its one-year fixed savings rate today (12 February) from 5.15% to 5.2% AER. 

It’s a rare sight to see fixed savings providers up their rates in the current climate as the freezing of interest rates by the Bank of England for the fourth time has contributed to pushing savings rates down.

MoneyWeek has been tracking the movement of one-year fixed savings accounts and has noticed the following between the third interest freeze on 14 December, to the latest pause on 31 January:

  • Six one-year fixed deals were withdrawn
  • 40 providers dropped their rates, with nine products falling below 5%, and one deal even reaching the 3% region

However, since the latest base rate decision at the end of January, we’ve seen four banks surprisingly up their rates on one-year fixed savings: 

  • Hodge Bank upped its rate from 5% to 5.11% on 8 February.
  • Shawbrook Bank increased its rate from 5.12% to 5.16% on 9 February.
  • SmartSave went from 5.18% to 5.21% today (12 February). 
  • Allica Bank increased its rate from 5.15% to 5.2% today (12 February). 

This contradicts what most experts have been predicting that rates would continue to fall - but their warning to savers to act quickly still stands, as it's a mixed bag of rising and falling deals, plus the best rates are unlikely to be on the market for long.

How to get SmartSave and Allica Bank’s one-year fixed saver

You can open the SmartSave saver or Allica Bank’s one-year fixed savings account online via their websites. 

To be eligible for either, you must make a minimum deposit of £10,000 within 14 days of opening the account. 

In the Smartsave account you can save up to £85,000, which is protected by the Financial Services Compensation Scheme (FSCS).

In the Allica saver, you can deposit up to £250,000 - though only £85,000 of your money is protected by the FSCS.

How does this compare to the rest of the savings market? 

Historically, fixed savings rates usually sit above the interest rates on easy-access savings. But with the string of rate drops, the top fixed savings deal recently fell below the top easy-access savings account. 

Now, you can earn near enough the same rate if you opt for the top easy-access account or one-year fixed deal.

These are currently the top rates on the market. 

Swipe to scroll horizontally
Type of accountProviderRate AERMinimum deposit
Easy-access savingsCahoot5.2%£1
One-year fixed bondSmartSave5.21%£10,000
Regular savings accountFirst Direct7%£1
Notice accountVanquis Bank 5.4%£1,000

While you can earn 5.21% with SmartSave’s top one-year fixed deal and 5.2% on Cahoot’s top easy-access account, they aren’t a like-for-like. 

If you’re looking for a savings account that offers freedom with withdrawals and a low minimum deposit, Cahoot’s easy-access account looks ideal as it only requires £1 to open. 

But remember, rates on an easy-access account are variable, which means they can fluctuate at any time depending on market conditions. 

Whereas a fixed savings deal means you will get that return on your savings for that term - in this case, you would earn 5.21% for one year with SmartSave even if the Bank of England cut rates and the savings market took a tumble.

Watch out for easy-access accounts that don’t actually allow free and easy access to your cash. Some impose restrictions on how many times you can access your funds in a year. (Although Cahoot does allow unlimited withdrawals on its account).

When deciding which account is right for you, it’s worth thinking about your savings needs first, shopping around and then reading any small print. 

Springall says: “It is vital savers are conscious of any restrictions on their account and make sure they switch, where they can, if it’s not working hard enough for them.”

Vaishali Varu
Staff Writer

Vaishali has a background in personal finance and a passion for helping people manage their finances. As a staff writer for MoneyWeek, Vaishali covers the latest news, trends and insights on property, savings and ISAs.

She also has bylines for the U.S. personal finance site and Ideal Home, GoodTo, inews, The Week and the Leicester Mercury

Before joining MoneyWeek, Vaishali worked in marketing and copywriting for small businesses. Away from her desk, Vaishali likes to travel, socialise and cook homely favourites