Hope for savers as fixed rates rise to 1% on a one-year bond

Fixed rates finally start to creep up: Savers can now earn 1% on a one-year fixed rate bond

After a long, dark winter, savers finally caught a glimpse of light last week when fixed rates crept up.

For the first time since last autumn, you can now earn 1 per cent on a one-year fixed-rate bond. But experts warn that savers will need to move fast as the top deals won’t be around for long.

Rates tumbled to record lows last year after the Bank of England base rate was cut to 0.1 per cent. 

Rates rise: For the first time since last autumn, you can now earn 1% on a one-year fixed rate bond

Savers were then dealt a further blow when National Savings & Investments (NS&I) slashed its bond rates to as little as 0.01 per cent.

But fixed-rate bonds have now improved slightly as new, smaller banks compete for customers’ cash.

These firms need the money to finance the surge in demand for mortgages, as buyers take advantage of the stamp duty holiday.

They are also trying to reverse the torrent of money that’s flooding into easy-access accounts by tempting savers with fixed-rate deals instead.

Savers piled £11.7 billion into easy-access accounts in April, bringing the total to £927 billion, Bank of England figures released last week revealed. In contrast, £2.4 billion flowed out of fixed-rate bonds.

Banks prefer to sign up savers for a fixed term so they know exactly how long they will have their money. But to persuade people to tie up their money for longer, they need to offer better rates.

At the start of last month, the best one-year bond paid just 0.63 per cent. Now you can earn 1 per cent with Aldermore Bank. 

This would get you £100 interest a year on each £10,000, compared with just £15 from the big High Street banks paying 0.15 per cent.

For two-year bonds, rates have climbed over the 1 per cent mark, with Aldermore paying 1.05 per cent. Most of the big banks pay only 0.2 per cent.

However, fixed-rate cash Isa rates remain stubbornly low. Even a higher-rate taxpayer can earn more interest from a bond than from a tax-free Isa.

The best one-year cash Isa rate from Aldermore and Shawbrook banks pays 0.55 per cent — or £55 a year interest on £10,000. 

Whereas the top one-year bond will net you £80 — even if you pay tax on your savings at 20 per cent.

Higher-rate payers would have £60 with the top bond after 40 per cent tax.

This is usually a popular time for Isas as savers rush to use their new annual £20,000 allowance at the start of each tax year. But the low rates have seen many savers abandon the tax-free accounts altogether.

Big banks pay a pittance. NatWest offers just 0.1 per cent if you tie up your money for one or two years. 

And Halifax, Lloyds and Bank of Scotland have all cut the rate on their easy-access cash Isas from a miserly 0.05 per cent to an almost zero 0.01 per cent.

It is little wonder savers took £1.4 billion out of cash Isas in April, the highest monthly amount since the accounts were introduced in April 1999.

The best easy-access account, available online or by post, pays 0.45 per cent with Charter Savings Bank. Marcus, RCI Bank and Investec offer 0.4 per cent.


Savings accounts

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