Top fixed savings rates rise month-on-month

Savers can now secure a higher fixed rate than one month earlier.

After seeing a steady decline in recent months after several cuts to the base rate, it’s refreshing to see fixed savings rates buck this trend by increasing between March and April.

Average and leading rates across the entire fixed bond sector all rose month-on-month after a number of significant increases by providers, analysis by Moneyfactscompare.co.uk revealed. But this doesn’t tell the whole story, as all the leading fixed rate bonds, including one-year bonds up to five-year bonds, paid 4.65% at the beginning of April.

“In a surprise turn, savers can expect to earn equal returns across all fixed bond terms, as market-leading rates have risen across the board, which has edged up their respective averages,” commented Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, on the first-of-month figures.

“To add to the intrigue, they are all offered by the same provider which could suggest there is less desire for competition,” she added.

While the leading rate of 4.65% (as of 1 April) only represented a slight monthly rise for three- and five-year bonds of 0.02 and 0.01 percentage points respectively, it was a more significant change for bonds with a shorter term.

One- and two-year bonds jump higher

The leading two-year fixed bond rose from 4.53% at the start of March to 4.65% at the start of April, a 0.12 percentage point increase.

And, looking more closely at this sector, it isn’t just the market-leading provider that beats last month’s top rate. Multiple providers now offer accounts paying in excess of 4.53%, giving savers who want to earn a guaranteed return on their money a wider choice of competitive options.

Furthermore, Eastell points out that those with an existing two-year bond about to mature may find that they could “now be better-off on a real-terms basis”.

“If they locked £10,000 into the market-leader in April 2023 they would have earned £931, but could now earn £20 more by the time their bond matures in 2027,” she explained.

Meanwhile, if savers don’t want to lock away access to their money for as long as two years, the leading one-year bond has edged even higher in the first couple of days of April.

DF Capital and Al Rayan Bank both now offer 4.70% on their one-year bonds, compared to a leading rate of 4.58% at the start of March.

As many experts predict that the Bank of England will cut the base rate further in 2025, which means savings rates are likely to resume their downwards trend, savers shouldn’t delay if they want to lock in a competitive rate.

But it’s important for savers to think about whether they have sufficient money in an easy access account and whether they can afford to lock away a lump sum in a fixed bond. While a longer-term bond can offer greater security against falling rates, savers won’t be able to withdraw their money until the end of the term.

Are you at risk of being taxed?

Even though higher rates are good news for savers, they need to be vigilant to make sure they’re not liable to pay tax on their savings.

The Personal Savings Allowance (PSA) means that basic-rate taxpayers can earn up to £1,000 in interest on their savings without being taxed, but this drops to £500 for higher-rate taxpayers while additional-rate taxpayers have no allowance at all.

It doesn’t take much for savers to use up their Personal Savings Allowance.

For example, if you deposited £22,000 in the leading one-year bond paying 4.70% AER, you would earn over £1,000 in interest, the PSA for basic-rate taxpayers.

Meanwhile, higher-rate taxpayers only need to deposit £10,700 in the same account to earn over £500 in interest and max out their PSA.

Anyone who is concerned about paying tax on their savings interest can instead consider an ISA, which allows you to deposit up to £20,000 each tax-year without paying income tax on any interest earned.

Savers yet to use up their current ISA allowance still have a few days left of the 2024/25 tax-year to take advantage of it, before it resets on 6 April.