Rock encourages savings with its competitive new plans as average rates remain stagnant

NORTHERN Rock has launched its most competitive savings range since its 2007 collapse just days after Labour proposed turning the nationalised bank back into a building society.

The Rock's new fixed rate individual savings account (Isa) was made available yesterday, following launches earlier this week of a children's account and a branch-based savings account.

The proposal to return Northern Rock to the mutual sector was unveiled this week in Labour's manifesto, which said that one option for the disposal of the bank would be to "encourage a mutual solution, while ensuring that the sale generates maximum value for money for the taxpayer".

At 3 per cent the new Northern Rock Isa Breaker is among the highest fixed rates available, equalling the rate paid by Dunfermline Building Society but eclipsed by the Coventry (3.25 per cent) and Kent Reliance building society, at 3.2 per cent.

It has also launched the Little Rock instant access account for children, with interest of 3 per cent paid annually, and a 2.5 per cent variable branch-based savings account, both of which can be opened with 1.

However, savings rates remain at rare lows, according to the latest official Bank of England figures. The average fixed-rate bond now pays just 2.33 per cent, the lowest since records began in 1996, compared with a high for the last year of 3.05 per cent in June.

Instant access accounts now pay an average of just 0.18 per cent, the highest for a year but the third lowest level on record, while the average notice account has crept up to 0.49 per cent, still below the base rate but more than double the figure a year ago. And despite improved competition ahead of the end of the 2009-10 tax year, Isas pay an average rate of just 0.46 per cent, down from 0.63 per cent a year ago.

But the low rates have not deterred Britons from squirrelling their pounds away. The average saver has doubled the amount they have put away over the last 12 months, according to research by Birmingham Midshires, owned by Lloyds Banking Group. It found that average savings accounts deposits reached 1,031 over the past three months, up from 554 recorded during the same period in 2009 and compared with 776 in the final three months of last year.

And while 20 per cent of savers have taken money from their accounts in the last three months, the average amount withdrawn has fallen from 1,724 to 1,499. Holidays and emergency home or car repairs were the main reason given for raiding savings, according to Birmingham Midshires.