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New savings account offers best five-year rate for six months

New savings account offers best five-year rate for six months

An Islamic bank has launched two new fixed-term savings deals, paying 1.8pc and 2.3pc for three and five years respectively.

The 2.3pc interest from Milestone Savings is the best rate currently available on five-year savings, while the 1.8pc account is topped only by Charter Savings Bank’s 1.85pc three year fixed-rate bond.

According to data service Moneyfacts.co.uk, this is the first time in six months that any provider has offered 2.3pc or more on a five-year fixed savings account.

Savers have struggled over the past year as rates have fallen dramatically, and in many cases no longer keep pace with inflation.

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As a Sharia’a compliant bank Milestone's rates are an “expected profit rate” rather than a fixed rate of interest.

If the expected profit rate is not going to be achieved, the bank will notify customers of the new expected rate. Customers then have the option of continuing at the new rate or closing the account immediately, receiving their initial deposit and the profit earned so far.

This income counts towards the personal savings allowance. Basic-rate taxpayers can earn up to £1,000 from savings tax-free, and higher-rate taxpayers have a £500 allowance.

At the end of the five year fixed term of the 2.3pc account, a £10,000 investment would grow to a final balance of £11,204, based on the expected profit rate. 

The accounts do not offer early access, meaning the money is locked away, and further funds cannot be added after the initial deposit.

The minimum deposit in the Milestone accounts is £10,000, and the accounts can only be opened online. Customers of Milestone are covered by the Financial Services Compensation Scheme, which covers up to £85,000 per person per provider in the event that a bank goes bust. 

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