Fixed bonds suffer widespread cuts in the month to May

Savers may need to move quickly to secure competitive fixed returns.

Returns on fixed rate bonds have fallen month-on-month in May according to analysis from Moneyfactscompare.co.uk. The fixed sector had briefly rallied the previous month, with top rates all settling at 4.65%.

However, while the top one-year bond emerged unscathed in the month to 1 May 2025 by maintaining these returns, its longer-term counterparts haven’t fared as well.

Based on a £10,000 deposit, the top rates for both two- and four-year fixed bonds seemingly took the brunt of these cuts, dropping by the largest margin to 4.54% month-on-month. Similarly, the leading three- and five-year bonds each fell to 4.61% and 4.64% respectively in the same timeframe.

This sees the gap between the top one- and five year accounts begin rising once again after diminishing in April. However, keep in mind it’s still significantly smaller compared to November 2024 when the former was 0.21 percentage points higher at 4.85%.

Meanwhile, average rates suffered similar reductions between April and May, with multiple sectors dipping back below the 4% threshold.

For instance, typical returns for a one-year account declined from 4.19% to 4.12%, which Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk, highlights as “the largest drop in seven months.”

Fixed rates fall further in wake of base rate cut

Yesterday’s announcement from the Bank of England’s Monetary Policy Committee (MPC) that the base rate would decrease to 4.25% came as little surprise for many.

The cut had been widely expected among economists who believed that the global financial instability caused by US tariffs would accelerate the MPC’s initially gradual approach to lowering interest rates.

As a result, many providers have already begun slashing fixed returns. As of 9 May, top longer-term rates have plummeted, with Birmingham Bank now paying 4.42% AER across the three- and five-year sectors, while the leading two- and four-year rates slipped to 4.43% AER and 4.40% AER, offered by GB Bank and JN Bank respectively.

Meanwhile, leading one-year returns have now declined to 4.55% AER and are paid by Tandem Bank.

Is now a good time to secure a fixed account?

The lowering of the UK’s central interest rate could see providers reduce fixed offerings in the coming months, though variable returns are usually the first to feel the effects of any cuts.

Conversely, it could also be the case that the base rate reduction has already been factored into the market. This may explain the recent downturn in both leading and average rates leading up to, and in the wake of the announcement.

Nevertheless, savers may struggle to beat or even meet rates from a year ago, with Eastell suggesting those coming out of a one-year bond “could now be £53 worse off in real cash terms.”

Indeed, leading returns in the sector sat at 5.18% in May 2024, which, assuming savers deposited £10,000, would equate to £518 in interest after a year. Compared to returns as of 1 May 2025 over the same term, savers would now earn only £465.

“Additionally, investors with six months to go on their two-year bond will be left disheartened as they can stand to lose over 1% in interest by the time their money matures after accounting for several base rate cuts later this year”, Eastell continued.

It’s therefore vital that savers review their accounts and could consider locking into a fixed term to secure rates in the event of any future cuts.

With this in mind, those searching for a new fixed bond may wish to lock away their money for longer, though consider that this typically means limiting access to funds for greater periods.