Best short-term bonds plummet – is it time you considered a longer-term savings account?

With more uncertainty ahead, there’s the potential for providers to drop rates further.

Savers looking to lock away funds in a fixed savings account may have noticed the best rates paid by shorter-term bonds suffered further cuts in the month to October, begging the question, is it time to consider longer-term options?

At the start of this month, the top one-year fixed bond paid 4.95% - down from 5.05% at the beginning of September, according to latest analysis from Moneyfactscompare.co.uk. Similarly, the best rate offered by a two-year fixed bond fell from 4.90% to 4.72% over the same timeframe. In contrast, market-leading rates in these sectors stood as high as 6.20% and 6.05%, respectively, this time a year ago.

While top returns on longer-term bonds have also declined dramatically over the past year, this corner of the savings market more recently displayed greater signs of stability; between September and October, the best three- and five-year fixed rates held steady at 4.72% and 4.64%, respectively.

Should you consider a longer-term bond?

Average fixed savings rates also experienced a downwards trajectory over recent months; however, four- and five-year bonds bucked the trend at the start of October with typical rates in these sectors rising to 3.87% and 3.81%, respectively.

This saw the gap between an average one- and five-year bond narrow from 0.63 percentage points in September to 0.49 percentage points by the start of this month. Whether this pattern will extend into the months ahead, though, is yet to be seen.

“It is possible that the savings market could be facing more uncertain times ahead, with the fast-approaching Autumn Budget and volatile repricing, which may cause providers to drop rates further,” explained Caitlyn Eastell, spokesperson for Moneyfactscompare.co.uk. Expectations for another cut to the Bank of England’s base rate before the year is out could also send rates tumbling across the board.

Savers interested in a fixed bond may therefore need to act quickly to take advantage of a competitive deal. While one-year bonds paying 5.00% have made a return over the past few days, there is no guarantee they will be on offer for long.

Meanwhile, those concerned about rates dropping significantly in the coming months and years may want to consider securing fixed returns for longer with a three-, four- or even five-year bond.