Leading short-term bonds fall month-on-month

The market-leading rate for a one-year fixed bond saw the largest cut in six months.

Savers may need to move quickly to lock in competitive rates, as analysis from Moneyfactscompare.co.uk revealed top returns for short-term fixed rate bonds fell in the month to March.

It found the leading rate for a one-year fixed bond saw a steep decline, plummeting by 0.19 percentage points to 4.58% month-on-month marking the largest fall since September 2024.

Meanwhile, top returns for a two-year fixed bond dropped from 4.70% to 4.53% in the same period.

“Despite impacting variable rates in the first instance, the Bank of England base rate cut in February could be partly to blame for fixed rate bond cuts,” explained Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk.

The Bank of England’s Monetary Policy Committee (MPC), slashed the UK’s central interest rate to 4.50% in February 2025, following two cuts in the latter half of 2024.

These short-term fixed rates have fallen considerably when compared to March 2024, when the top one- and two-year bonds stood at 5.26% and 5.10% respectively.

Longer-term bonds appear more stable

Longer-term bonds, on the other hand, seemed to have fared better than their shorter-term counterparts.

The top three- and four-year bonds held steady at 4.63% and 4.54% month-on-month respectively, though five-year fixed bonds did experience a decline in the same timeframe to 4.64%.

Traditionally, higher returns were paid to longer fixed terms, however, up until recently shorter fixed terms had offered savers better rates.

While five-year bonds were already out-performing short-term bonds last month, this latest data sees the gap between the top one- and five-year bond continue to widen from 0.03 to 0.06 percentage points.

Indeed, in the wider market, the average five-year fixed rate climbed from 3.93% to 3.96% month-to-month. This saw the gap with average one-year returns narrow from 0.28 to 0.20 percentage points, as more five-year bonds began to offer more competitive returns.

Will fixed rates continue to fall?

It’s hard to predict whether fixed rates will carry on falling, though savers contemplating whether to open a fixed rate bond would be wise to decide soon in case returns continue to decline.

“Many economists expect that interest rates will continue to come down this year, and to add insult to injury, inflation is expected to temporarily rise to 3.7% in Q3 2025,” added Eastell.

While the base rate now sits at its lowest point in over 18 months, rising inflation, which already sits above the Government’s 2% target, could curb further cuts; however, keep in mind other factors could still affect savings interest.

In any case, savers coming to the end of a fixed term may find themselves struggling to match previous returns, and should consider, if they haven’t already, turning to more unfamiliar brands to secure the most competitive rates.