Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 23/08/2019

In a bizarre twist, three-year fixed rate bonds are now at higher rates than their four-year equivalents, making three-year fixed term savings accounts more attractive to savers looking to earn the best interest they can without locking in for an extra year.  If you’re solely looking for the best return on your savings, then you can get higher rates from longer term fixes. However, with BLME so dominant in the fixed rate tables, if you have over £85,000 to save, you’ll need to make sure you deposit this with different banking providers to be protected by the financial services compensation scheme.

Last week both PCF Bank and Tesco Bank launched new fixed-term bonds, and while these are a welcome addition, neither of them knock the Bank of London and Middle East (BLME) off their top spot in every fixed-term bond category.

We reveal how the new accounts launched this week compare to the rest of the market and where to find the best fixed rate bonds across one, two, three and five-year terms.

Looking at data from the Moneyfacts UK Savings Trends Treasury Report this week we found that 40% of savings providers had cut or withdrawn their fixed rate bonds during July, weakening competition within the fixed rate bond chart. Saying this, the chart still contains some highly competitive products and continues to offer the highest overall savings rates. In fact, during the summer the top rates within the fixed rate bonds, easy access savings accounts and notice accounts charts have remained fairly consistent, however this may not continue as we move into September and, with the rumours of a potential cut in base rate, savers may want to take advantage of the competitive rates currently on offer.

Savers looking to deposit up to £85,000 have the peace of mind that their savings are protected by the Financial Services Compensation Scheme (FSCS), but for those looking to save over this amount, ensuring their savings are protected becomes more complicated. To help these savers ensure their money is protected, Moneyfacts.co.uk has looked at how to invest over £85,000 to get the best returns while also being FSCS-protected.

Last month saw 40% of savings providers cut or withdraw their fixed rate bonds, data from Moneyfacts UK Savings Trends Treasury Report has found.

The findings from the report, which is not yet published, will be unpleasant reading for savers, especially for long-term savers who have been hit particularly hard, with long-term rates seeing the biggest month-on-month drop since November 2016. In fact, during July, a third (33%) of providers adjusted their longer-term fixed bond range, but short-term savers were also hit, with a fifth (20%) of providers amending their one-year offerings.

Savings market analysis 

  April 2018 August 2018 July 2019 August 2019
Average one-year fixed rate bond 1.22% 1.32% 1.41% 1.37%
Average longer-term fixed rate bond* 1.69% 1.82% 1.78% 1.72%

*Longer-term fixed bonds are those with terms over 550 days. Source: Moneyfacts Treasury Reports

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The cuts to fixed rate bonds are gaining momentum, so much so that returns are dropping to their lowest levels seen in at least twelve months. This will be disappointing news to the day-to-day saver, as providers are reacting swiftly to a shift in their market position.

“As our analysis shows, almost half of providers in the savings market withdrew or cut their fixed rate bonds throughout July, a large portion of which were from challenger banks and Islamic banks. The challenger brands still dominate the fixed rate bond market regardless, however if savers lock in today versus a month ago, they may well have missed the boat for a more generous return.

“Providers appear to be altering their market position not necessarily to deter savers, but to adjust their margins and close the gap between their competition during a period of economic uncertainty. Indeed, the re-pricing comes at a time when the savings market may be preparing for a drop in the Bank of England base rate, with the two-year SWAP rate - a key indicator - falling to its lowest point (0.67%) since September 2017 (0.54%).

“Savers would be wise to prepare themselves for possible further falls in fixed rates as market influences take their toll, so if they are looking to lock away their cash, speed is of the essence. The same speed is crucial for savings providers to have an opportunity to adjust their rates and retain a decent market position to help gain deposits to fund their future lending - rather than pulling a deal entirely due to demand.”

This week it was revealed that the rate of inflation had risen to 2.1% in July, which meant that savers wanting to put their money into an account that matched or beat inflation had to choose a fixed rate account. Moneyfacts.co.uk research found that just 65 fixed rate bonds and two fixed rate ISAs (based on a £10,000 deposit) could match or beat inflation and, of these, only 57 fixed rate bonds and one fixed ISA paid more than 2.1%.

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