Savers return to fixed rate bonds as rates soar

Savers are returning to fixed rate bonds as rates soar – but experts warn they should stick to shorter trades

Savers are turning to fixed rate bonds as rates soar. But experts say they should choose shorter deals rather than holding onto long-term cash.

The amount of money paid into fixed-rate accounts hit a 12-year high last month, with £2.8bn deposited – the highest level since November 2010, according to the Bank of England.

This is up from £9m at the start of 2022, when the best one-year bond was paying just 1.35%. The best rate is currently 3.5% with Ahli United Bank on the Raisin UK site.

Bond rush: Households deposited £2.8bn into fixed-rate accounts last month, the highest level since November 2010, according to a Bank of England report

There’s little incentive to choose two- or five-year bonds as they don’t pay much more interest – often just an extra 0.2 percentage points on a two-year account, which would be £20 more per annum on a deposit of £10,000, and an additional 0.11 percentage points per annum over a period of five years, where the highest rate is 3.61%.

Savers on one-year deals will also be able to take advantage of a better offer after 12 months if rates rise further, as expected.

Kevin Mountford, co-founder of savings platform Raisin UK, says: “One-year bonds are a great option. There’s not enough of a premium in two-year bonds yet to make them worthwhile.

Rates could rise further if the Bank of England raises the base rate by 1.75% in the coming months.

But you may miss out while waiting for better deals. If you set aside £10,000 until next September, you’ll earn £350 in interest on the best one-year bond.

But if you were to wait six months and then lock in your money for the remaining six months, you would only earn £185 in interest, even at a higher rate of 3.7%.

If you choose to leave your money in an easy-to-access account rather than your checking account for the first six months and earn £75 interest at 1.5%, you’ll still be £90 worse off.

The highest rates do not stay long, sometimes only a few days. It’s mainly the smaller banks that compete for your money and once they achieve their goals, they quickly attract the best sellers.

High Street banks are still lagging behind. The best one-year rate is 1.75% at Barclays.

Santander pays 1.5% to its 123 World and Select customers and 1.4% to others. HSBC offers 1.25%. NatWest generally has no bonds on sale, while Halifax and Lloyds will offer a one-year bond at 1.5% from September 14.

If you need quick access to money, stick to easy-to-access accounts. You generally cannot withdraw your money from a fixed rate bond until the end of the term.

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How to find the best savings rates

Savings rates have been in the doldrums for many years, but the situation has been hugely exacerbated by the pandemic and the drop in the base emergency rate to 0.1%.

But there are ways to make sure your money is at least the best of the bunch at all times.

Checking out the best rates is essential, but it’s also possible to make your life easier overall and manage your pools in one place.

Over the past few years, a number of savings platforms have been launched, offering savers the flexibility to switch as better deals become available and manage accounts from different banks and building societies.

They each work slightly differently and include their own exclusives. To check out what’s on offer, take a look for yourself:

The platforms presented below are independently selected by This is Money’s specialist journalists. If you open an account using links that have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.

> Grape*

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Or you can check out the full savings charts of This is Money’s best buys here, independently curated by savings guru Sylvia Morris:

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