Time to act as fixed savings rates stagnate

While rates on short-term bonds continue to tumble, longer-term bonds are performing slightly better.

Time’s running out to lock in a competitive savings rate as providers continue to cut rates on their fixed bonds.

The top rate on one-year bonds fell from 4.95% at the start of October to 4.85% at the start of November, while the leading rate on two-year bonds fell from 4.72% to 4.65%. This is according to analysis of the savings market by Moneyfactscompare.co.uk.

These have fallen considerably from six months ago, when the leading one- and two-year fixed rates stood at 5.18% and 5.05% respectively.

“Despite a short but welcome return during October, fixed rate bonds paying 5% or above have yet again disappeared from the market,” Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, explained.

“With the Bank of England moving to reduce base rate, it is possible that this decision will impact providers’ pricing strategies, so it is unlikely that we will see them make a comeback,” she continued.

Average fixed savings rates have seen a similar decline, with the average one-year bond falling from 4.58% to 4.24% over the past six months and the average two-year bond falling from 4.30% to 4.02% over the same period.

Longer-term bonds holding steady

Longer-term bonds haven’t seen the same month-on-month drops as their shorter-term equivalents.

Even though the leading rates on three- and five-year fixed bonds are lower than six months ago, and significantly lower than last November, they held steady at 4.72% and 4.64% respectively between October and November.

Meanwhile, average rates on three- and five-year bonds fell by just 0.03 and 0.02 percentage points respectively between October and November. By contrast, the average one-year bond dropped by 0.06 percentage points.

This means that the gap between the average one-year bond and five-year bond has narrowed to 0.45 percentage points, compared to a gap of 0.65 percentage points in May 2024.

Shield your savings

With savings rates expected to continue their decline after the Bank of England cut the base rate to 4.75%, savers can protect their money from further rate reductions by locking it away in a fixed-rate bond.

Those coming to the end of a one-year fixed bond may find rates are now lower than the rate their current bond pays. For example, the market-leading one-year bond in November 2023 paid 6.05% compared to 4.85% in 2024.

Despite this, it’s still worth reviewing your options and switching to the highest-paying savings account that best meets your requirements.

Being complacent and allowing your savings to languish in a low-paying account could mean you miss out on hundreds of pounds of interest, or potentially even more. For example, if your fixed-rate bond matures and you don’t actively move your money, a provider may automatically put it into an instant access account that pays relatively little interest.

“Consumers would be wise to act with haste if they spot an attractive deal, as they may have a shorter shelf-life,” Eastell noted.

“Savers who are more open to lesser-known brands, such as challenger banks, will find that typically they offer higher rates of interest,” she added.

By moving your savings into a fixed-rate bond, you will receive a guaranteed rate of interest for the length of the term, regardless of whether savings rates continue to fall.

So, as long as you can afford to lock away your money for a number of months or years, opting for a fixed rate bond can help you take advantage of the most competitive savings rates before they disappear.