Savings rates broke through the 7% barrier today 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.
Crunch good for savers
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.
Experts predict that other banks are 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.
Minimum investment for Icesave deal
They will receive a return of 7.01% if interest is paid on maturity or 6.79% if it is paid monthly.
Figures from financial information group Moneyfacts.co.uk show that best buy savings rates are generally around 1% higher now than they were in November 2006, the last time the base rate was at 5%.
The highest paying internet account currently offers a return of 6.5%, compared with just 5.45% in November 2006 and 5.70% in April last year.
Returns on one-year fixed rate bonds are also more than 1% higher at 7.01% for the best product available now, compared with 5.9% in November 2006, while the top no notice account currently pays 6.06%, up from 5.30% last time official interest rates were at 5%.
At the same time the speed at which new products are coming on to the market has nearly tripled, as banks compete against each other for savers’ cash.
A total of 56 new savings products were launched during April, up from just 20 in the same month of 2007.
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