Return to ‘traditional’ savings market as top one-year rate experiences largest fall in nine months

Five-year bonds now pay better rates following this latest round of cuts.

Savers may be disappointed to see a swathe of cuts continue to batter the fixed bond market, with one-year bonds suffering particularly heavy losses in the month to June.

Analysis from Moneyfactscompare.co.uk showed that typical returns in the sector slipped to 4.02% at the start of the month, down significantly from an average rate of 4.12% recorded in May. Meanwhile, the top one-year rate spiralled from 4.65% to 4.45% in the same period, marking its largest cut since September 2024.

“Providers may have been keeping an eager eye on swap rates since the second cut to base rate this year as they are a helpful tool to ensure that their pricing strategies match the current market conditions,” explained Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk.

Indeed, a reduction in the UK’s central interest rate to 4.25% in May could explain why two- and three-year bonds experienced similar drops, albeit by smaller margins compared to their one-year counterpart.

Top rates for a two-year bond, for instance, fell from 4.54% in May to 4.44% in June, while the leading three-year equivalent dipped by 0.16 percentage points to 4.45% over the same timeframe.

Higher rates now available with five-year bonds

Although other fixed terms may have fallen, five-year bonds emerged intact as of the beginning of the month.

The top rate remained at 4.64% between May and June, overtaking leading one-year returns by 0.19 percentage points which, as Eastell points out, sees a return to a “traditional” arrangement where “long-term fixed bonds pay better returns than their short-term counterparts”.

On a first of the month basis, the last time the top five-year bond exceeded the top one-year bond was back in March 2025 when rates stood at 4.64% and 4.58% respectively. The sectors then both levelled out at 4.65% in April, before leading five-year returns dipped to 4.64% in May.

It’s a similar story when looking at the average rates for both terms. A year ago (June 2024), the gap between typical one- and five-year returns was at 0.63%, but by December 2024 this has already tightened to 0.36%. As of June 2025, this gap now sits at only 0.11% after the average five-year rate held at 3.91% month-on-month.

Compared to shorter terms, long-term bonds have generally been under-performing in recent years due to their sensitivity to changing interest rates. Influences from the infamous “mini- Budget” in 2022, and the ongoing effects of US trade policy on the UK savings market tend to generate increased volatility for longer-fixed bonds, so it may be a positive sign to see top rates rising.

Is it worth fixing for longer?

Following these latest changes, those tentative about locking their money away for longer may feel encouraged to commit to a five-year term to get the best returns.

According to Eastell, “if savers were to invest £10,000 for five years now, they could earn up to £2,546 by the time their deal matures”.

“This is well over double the interest earned from the market-leader in June 2020, at just £933,” she added.

However, as always, these lucrative returns come at the cost of not being able to access your money for longer which could put a strain on your finances should you need to make a withdrawal in the near future. This could give shorter one-year bonds an edge, even if rates aren’t as favourable.

It’s also worth pointing out that since the start of June, top five-year returns have already diminished to 4.46% (as of 10 June), which now only just outpaces the leading one-year account at 4.45%.

Ultimately, locking into any fixed bond is worth considering for those worried about the base rate potentially falling further. However, with uncertainty looming over the Bank of England's next announcement due next week (19 June), savers may need to move quickly to secure rates.