Fewer fixed savings accounts offering a real return on your money

Rising inflation is eroding the real value of our savings pots.

With inflation on the rise, fewer fixed rate bonds now offer inflation-beating returns. Indeed, the number of bonds paying interest above inflation dropped by more than 100 over the past month alone, according to analysis by Moneyfactscompare.co.uk.

A combination of inflation rising to 3.8% in July and cuts to the Bank of England base rate (which has prompted many savings providers to lower rates), means that it’s now more difficult for savers to find a fixed bond that pays above inflation.

However, by putting aside some time to review their existing accounts and, if necessary, switch provider, savers can still receive a competitive return on their money.

Encouragingly, the leading one- and five-year fixed bonds remained the same between the start of August and the start of September, standing at 4.50% and 4.64% respectively. The top one-year fixed rate has edged even higher in recent days after Afin Bank launched a new 1-Year Fixed Term Account (Issue 2) paying 4.52% AER.

But, as providers can change rates and withdraw accounts at short notice, savers should act quickly if they want to lock in a guaranteed return from a particular account.

“Over the past month the number of fixed bonds paying above inflation has fallen by over 100, and with further spikes [in inflation] expected, savers may find it increasingly harder to find an attractive deal,” Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk, commented.

Discover the latest fixed rate bonds

Our charts are updated throughout the day to show the best fixed savings rates currently available.

You can find short-term bonds of up to one-year, as well as longer-term five-year bonds.

The impact of falling rates

Savers who have enjoyed relatively high savings rates over the past couple of years may not feel very motivated to switch savings accounts as rates are now significantly lower.

For example, two years ago the leading short-term fixed bonds could offer in excess of 6%, the highest these rates had been since 2008.

“Those savers who were lucky enough to secure a top deal and deposit £10,000 could now be enjoying over £1,000 in interest. However, if they decide to reinvest today, due to tumbling rates, they will earn almost £350 less by the time their two-year term ends,” Eastell explained.

But, while this could be discouraging for savers, Eastell points out that they shouldn’t be deterred from switching, “as many fixed bonds are still very competitive and choosing not to do anything could leave them significantly worse off”.

Choosing a fixed term

The gap between the average one- and five-year fixed savings rates has narrowed over the past year.

At the start of September 2024, the average rate on one- and five-year bonds stood at 4.43% and 3.80% respectively, a gap of 0.63 percentage points.

One year later, this margin has shrunk to just 0.05 percentage points as the average one-year bond fell to 3.97% while the average five-year bond rose to 3.92%.

With one-year bonds and five-year bonds now offering more similar returns, many savers may be debating whether to put their money into a short-term fix or lock it away for a longer period.

Each option has its benefits and downsides. For example, a one-year bond means you can access your money sooner but, if you want to deposit it back into a fixed account, you may need to settle for a lower return if rates continue to fall.

By contrast, if you deposit your money in a five-year bond, you will continue to earn the same interest rate, regardless of what happens to rates across the wider savings market. This means your money will be protected against any drops in interest rates but, to receive this guaranteed return, you need to be confident you won’t need to access your savings during the specified term.

Think about your savings goals and individual financial situation, as well as the interest rates available, when deciding where to put your money.

Finding a savings account

If you want to secure a guaranteed rate on your savings, visit our fixed rate bond charts. However, if you want an account that allows you to dip in and out of your savings, take a look at our easy access and notice savings charts.

Alternatively, our weekly savings roundup highlights the top rates available on easy access, fixed and notice accounts.