Top fixed savings rates remain strong, but there may be cuts ahead

With potential cuts to the Bank of England base rate on the cards over the coming months, savers may benefit by locking in a fixed rate now.

Even though some providers lowered rates over the past month, the top fixed savings rates remain competitive in November, with shorter-term fixed bonds staying particularly resilient.

Encouragingly, the leading one- and two-year bonds available edged higher at the start of November to 4.46% and 4.45% respectively, analysis by Moneyfactscompare.co.uk reveals.

“The top one-year bond has risen for the first time since July, however, it’s still a far cry from the highs of two years ago, when the best rates exceeded 6%,” Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk, commented.

At the start of November 2023, the leading one-year bond paid 6.05% while the top two-year bond offered 6.00%, more than 1.5 percentage points higher than currently available.

Securing a top rate before they disappear

Even though the top fixed savings rates continue to offer competitive returns, there’s no guarantee how long they may stick around.

The Bank of England stated that it believed inflation had peaked at 3.8%, which Eastell notes “may not bode well for savers, as the chances of a base rate cut in December rise significantly”.

Although a cut to the base rate has a more immediate impact on variable savings rates, providers are likely to factor this in when it comes to pricing their fixed bonds.

As a result, Eastell warns that “any hesitation [from savers] to lock in their rates now could mean they miss out in real terms”.

There are already signs that providers may be lowering rates paid on their fixed accounts in anticipation of further cuts to the base rate, as average fixed rates fell across the board between the start of October and November.

The average one-year fixed rate dropped from 3.99% to 3.95% while the average two-year fixed rate saw a smaller decline from 3.90% to 3.89%. And longer-term bonds didn’t escape these cuts, as the average five-year fixed rate fell from 3.96% to 3.93%.

These changes in rates mean the gap between the average one- and five-year fixed rate has narrowed to just 0.02 percentage points, compared to 0.45 percentage points one year ago.

Risk of the ‘wait and see’ approach

Understandably, some savers may be nervous about locking away their money into a fixed bond for several years, especially as the upcoming Autumn Budget on 26 November could have significant consequences for our finances.

Eastell explains that this uncertainty may prompt some savers to adopt a ‘wait and see’ approach, which means they may assess how any policy changes could affect them before deciding where to put their savings.

However, she adds that, depending on what is announced in the Budget, “it’s not guaranteed that markets will react favourably”, which means “it may be best to secure the market-leading rates now”.

As long as savers have sufficient money in an easy access account that they can dip into in an emergency, it could be beneficial to put their surplus savings (that they won’t need immediate access to) in a fixed bond.

This will ensure their money earns a guaranteed return, regardless of what happens in the wider market, and will be protected from any potential drops in rates.