Bonds offering 5% dwindle as top fixed rates suffer further cuts

Average fixed savings rates fell across the board in the month to September, with top returns dropping by as much as 0.35 percentage points.

The fixed bond market saw average rates drop across every category in the month to September, according to latest analysis from Moneyfactscompare.co.uk.

It found that average rates for a one-year bond fell by the largest amount, dropping from 4.63% to 4.43% between August and September.

Meanwhile, average returns on a five-year account declined from 3.92% to 3.80% in the same period.

How have top rates been affected?

Leading rates in the fixed sector weren’t exempt from a decline in the month to September; the top one-year, two-year, three-year and five-year fixed accounts all saw returns fall.

In the same period, the uppermost rate for a one-year bond, which was at 5.40%, dropped to 5.05%, with two-year accounts slipping below the 5.00% threshold to 4.90%.

Furthermore, while short-term accounts have paid higher rates than their longer-term counterparts for some time, the gap between the best-performing one-year and five-year bonds is closing, narrowing from 0.45 to 0.41 percentage points between August and September.

However, it’s worth noting that this gap is still wider than a year ago, when the best rates for one- and five-year bonds sat at 6.20% and 5.85% respectively.

Will rates continue to fall?

The fixed market may still be adjusting to the latest cut to the base rate, which is a significant factor in determining returns offered by providers.

The Bank of England’s Monetary Policy Committee announced the lowering of the UK’s central interest rate last month from 5.25% to 5.00%, marking the first drop in more than four years.

Those concerned rates will continue falling beyond 5.00% may wish to lock in higher returns quickly and should consider shopping around for the best-paying accounts.

This includes lesser-known brands, which currently offer some of the most competitive rates.

“Challenger banks will have their own deposit targets to meet so that they can comfortably fund their future lending. Therefore, some could break against the rate-cutting trend to entice new business, but the deals may not be on the shelf for long,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

“However, fixed bonds can face notable cuts or even be withdrawn from sale if providers get inundated with deposits from savers rushing to secure a top rate deal, fearing rates are doomed to fall further still,” she continued.

It’s unclear whether there’ll be more cuts before the end of the year, but it’s always important to review your savings to ensure you’re still receiving the most competitive returns.

With this in mind, our fixed bond chart is regularly updated and can show you the best rates currently on the market.