Fixed savings rates continue pandemic recovery

The average rates on fixed savings accounts have risen for the sixth consecutive month, the first time this has happened since August 2007, research published in the Moneyfacts UK Savings Trends Treasury Report reveals.

Savers looking to lock into a fixed rate bond will find that the average rate on a one year bond is now 0.80%, its highest level since June 2020.

Meanwhile, the average rate on a longer-term fixed rate bond stands at 1.14%, its highest level since May 2020.

During the past 22 months savings rates fell to record lows, with banks and building societies slashing rates across all their savings accounts. This was partly due to the Bank of England cutting base rate to a historic low of 0.10% in March 2020.

Last week, however, the Bank of England increased base rate for the first time since the pandemic began, and base rate now stands at 0.25%. Although the base rate rise may not be passed over to savers, it is a positive sign that the market will continue its pandemic recovery.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “The fixed bond market continues to thrive with a healthy injection of competition, particularly among challenger banks. All average one year and longer-term fixed rates across bonds and ISAs have now risen for six months in a row and these returns are notably more than those seen this time last year. This consecutive rate rise phenomenon has not been seen since August 2007, before the financial crash, and demonstrates the steady growth since rates fell to record lows earlier this year.

“Despite a positive climb to fixed ISA rates, they pale in comparison to bond rates and the difference between the two is stark. The average one year ISA rate pays 0.57% compared to 0.80% on a one year fixed bond, so those savers adamant to use their ISA allowance as routine would be wise to consider their existing Personal Savings Allowance (PSA), which is £1,000 earned in interest tax-free for basic rate taxpayers and £500 for higher rate taxpayers. In addition, savers will have a fixed allowance that they can invest in an ISA each year.”

Although average rates on fixed savings accounts have been increasing, rates on variable accounts, including easy access savings accounts, have not seen similar increases.

Springall added: “While savers may have seen continued improvement to fixed rates, all average variable savings rates remained unchanged month-on-month for the first time since July 2019. This stagnation may be disappointing news considering how savers may well have hoped to see competition enrich the variable rate market, especially on easy access accounts which remain a firm favourite.”

She continued: “Savers who are pulling their cash out of fixed and storing it within easy access accounts may do so for ease and peace of mind, however, on average easy access accounts pay 0.19% compared to 0.55% on a notice account and 0.80% on a one year fixed bond – approximately three and four times more interest respectively. Those savers looking to maximise their interest may need to reconsider how vital it is to access their cash instantly moving into 2022.”