Lenders lift savings rates to fund mortgage deals

Savers are being offered rates of almost 5 per cent above the Bank of England base rate as banks and building societies compete to raise cash to fund new mortgages and pay off wholesale borrowing they secured before the credit crunch. Interest rates paid on fixed-term savings accounts have increased by more than 50 per cent since March, figures from financial information firm Moneyfacts show, despite the base rate remaining at a historical low of 0.5 per cent. Over that period the average rate paid on five-year fixed-rate bonds has increased from 2.86 per cent to 4.38 per cent, while rates on four-year bonds have risen from an average of 2.89 per cent in March to 4.12 per cent .West Bromwich building society has launched a range of E Bonds, including a five-year bond paying 5.45 per cent on deposits of £5,000, while Barnsley building society has online bonds paying 5.4 per cent for five years and 5 per cent for three years. Instant access accounts are also getting more competitive, with Egg raising its interest rate to a market-leading 3.25 per cent last Friday.