Banks are now offering more competitive deals than their building society counterparts, with interest rates at the latter taking a hit from the historically low Bank of England base rate.

New research shows that mutuals no longer lead the way when it comes to savings deals. Last year, over a million savings accounts were opened with building societies, according to the Building Societies Association, as the financial crisis within the banking sector prompted a ‘flight to quality’ from savers. Competition deals from smaller organisations also tempted people away from PLCs.

However, new research from data provider Moneyfacts, shows that societies no longer lead the way when it comes to savings rates with banks taking over the mantle.

The average rate on cash ISAs is currently 2.25% among banks, compared to the average rate of 1.98% offered by building societies. Likewise, instant access deals pay, on average, 1.01% across the banking sector but just 0.76% across societies. And banks also lead the way with notice accounts paying an average rate of 1.3% compared to 0.98%.

The only product societies continue to lead on is fixed-rate deals; Moneyfacts reports that the average interest rate on building society fixed bond offerings is 2.98% compared to 2.71% offered by banks.

Michelle Slade, analyst at Moneyfacts.co.uk, says: “Banks have come in for plenty of criticism in the last 18 months, but overall they are offering the best deals to their customers.”

So, are banks really the best home for your savings or do building societies still have something to offer?

Although banks lead the way on average savings rates, they lose out when it comes to fixed-rate deals with societies on average offering better returns. Fixed-rate accounts have been extremely popular in the past six months, as savers looked to lock away lump sums with ‘safe’ institutions and attempted to dodge the sharp fall in interest rates.

At the same time, while societies no longer offer the best overall range of savings products, they do offer 60% of best-buy deals, according to Moneyfacts.

When it comes to picking a savings account, the type of institution you opt for might be a consideration – many people prefer banking with building societies because of their mutual status and tendency to offer consistently good rates. Plus, it is worth bearing in mind that, unlike banks, no building society has failed in the current financial climate.

Fixed rate best-buys: banks versus building societies

Instant access best-buys: banks versus building societies

Cash ISA best-buys: banks versus building societies

Key: f = fixed-rate v = variable-rate
 

Key: f = fixed-rate v = variable-rate

• savings
• interest rates
• FSCS
• building societies
• banks