Savers can now earn the highest interest rates for 14 years without having to lock up their cash in a fixed-rate account.
Santander on Monday launched a market-leading easy-access account paying 5.2pc on savings up to £250,000, as banks race to offer the best savings rates.
It is the highest rate of annual interest paid on an easy-access savings account since the start of 2009.
Virgin Money has also upped rates on its “Easy Access Cash Isa Exclusive” account to 4.51pc on Monday morning and launched a new one-year fixed-rate Isa paying 4.25pc.
It comes just days after National Savings and Investments (NS&I) unveiled a one-year fixed-rate savings account with a rate of 6.2pc, its highest since 2008. Commentors said it would force high-street brands to up their offerings.
Anna Bowes of comparison site Savings Champion said such a rate was “very unusual coming from a high-street bank”, adding Santander’s increase would hopefully push other savings providers to do the same.
Easy-access savings rates rose above 5pc for the first time since 2009 last month when the challenger bank Tandem upped the rate on its instant-access savings account to 5pc.
High-street banks have been raising rates after the Financial Conduct Authority (FCA) threatened to take “robust action” against those that failed to offer customers fair value.
Around £1.5 trillion is currently stashed away in savings accounts, excluding NS&I accounts, according to the FCA.
However, some £250bn is sitting in accounts that earn savers zero interest, despite the fact that the Bank of England has increased rates 14 times since December 2021 to hit its current high of 5.25pc.
The financial regulator has set out a 14-point action plan to push banks to offer customers a better deal on the savings.
Since it outlined the action plan in July, the FCA said it had seen some savings providers respond by improving rates. “We welcome the development of a more competitive market and encourage people to shop around for the best deal,” a spokesman said.
Over the past two months HSBC has increased the rate on its “Flexible Saver” account from 1.75pc to 2pc, while NatWest has raised rates from 1.1pc to 1.75pc.