BANKS are battling it out to offer customers market-leading savings rates.
Some experts are now suggesting that savings rates could reach 5% in a matter of months.
App-only challenger bank, Atom, is currently offering savers 4.11% returns on savings of £50 or more in a one-year fix.
It would mean that if a customer saved £1,000 across the year they'd expect to gain £41.10 over the period.
But customers not willing to lock away their cash can still get up to 2.5% interest on their savings with the Yorkshire Building Society's Rainy Day Saver.
Banks have raised their interest rates because the Bank of England raised the base rate seven times in recent months.
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The base rate of interest set by the central bank was hiked from a low of 0.1% to 2.25% and while it's bad news for borrowers it's great for savers.
Higher interest rates allow savers to get a higher rate of return when they save their hard-earned cash.
We've listed some of the best savings accounts available this week.
But traditional high-street institutions are letting the side down, according to personal finance experts.
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"Newer challenger banks and online-only institutions are battling it out for the top spot, while high street giants take a breather on the sidelines," said Sarah Coles of Hargreaves Landsdown.
Rachel Springall of MoneyFacts goes as far as saying that customers of high street banks should urgently take their savings elsewhere.
When looking at some of the rates offered by these legacy banks, it's easy to understand why.
For example, HSBC's easy-access Online Bonus Saver only pays customers 1.4% interest on balances up to £10,000 and if you save more than this you'll only get 0.65% back.
What's worse is HSBC only pays 1.25% interest on its one-year fixed rate saver – 2.86 percentage points less than you'd get if you saved £50 or more in the market-leading Atom Bank fix.
And if you're a Lloyds Bank customer, the easy-access Club Lloyds Saver only pays 0.7% back on savings up to £25,000 and customers don't even have the option to fix their savings in a bond for one year.
But even though the best rates have hit more than 4%, experts are suggesting that they'll soon top 5%.
Andrew Hagger of MoneyComms said: "I think competition in the market will see rates continue to creep up in the coming months and we could even see 2.75%% for easy access and 5% fixed on one-year bonds by the end of the year."
Meanwhile, Ms Coles suggested that savings rates could hit this level imminently because of what's happening right now in the swaps market.
She said: "You’d expect fixed rate savings to rise to 5%. It’s hard to know how long this will take.
"We could see a slow shuffle, or we could see a break-away bank push everything up, or the arrival of a really big player among the leaders, which would force more banks to work harder to beat it."
What should savers do now?
Even if rates creep up in the coming months, our experts suggest that savers act now to make sure they're getting the best rates available.
Ms Coles said: "While rates are rising, it’s difficult to know when to fix because it could be higher again tomorrow.
"The big risk with wait-and-see savings is that it’s incredibly difficult to spot the top of the market until it has passed and by then, you could have missed out on months of higher interest.
"So you need to make a decision now about what you want to do."
Mr Hagger said: "Don't hold off saving by holding out for an even better rate – take advantage of the good rates which are available now."
Rachel Springall of MoneyFacts recommends that save some cash in a fixed bond but retain some in an easy-access account for emergencies.
She said: "As interest rates rise it would be wise for savers to split their cash between fixed bonds and variable rate deals with flexibility so that they can both maximise their interest earned and have some access to their cash in case of emergencies."
How to find the best rates
With your current rates in mind, don't waste time looking at individual banking sites to compare rates – it'll take you an eternity.
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Research websites like MoneyFacts.co.uk and price comparison websites such as Compare the Market, Go Compare and MoneySupermarket will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
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