Savers flock back to fixed-rate bonds as rates soar

Products featured in this article are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence. 

Savers are flocking back to fixed-rate bonds as rates soar. But experts say they should choose shorter deals rather locking away cash long term.

The amount of money being paid into fixed-rate savings accounts hit a 12-year high last month, with £2.8 billion deposited — the highest level since November 2010, according to the Bank of England.

This is up from £9 million in early 2022, when the top one-year bond paid just 1.35 per cent. The best rate now is 3.35 per cent from United Trust Bank.

There is little incentive to choose two or five-year bonds as they do not pay much more interest — often just 0.2 percentage points extra on a two-year account, which would be £20 more a year on a £10,000 deposit, and 0.11 percentage points extra per year on a five-year fix, where the top rate is 3.61 per cent.

Savers on one-year offers will also be able to cash in on a better deal after 12 months if rates rise further, as expected. You can check the best fixed rate savings bonds in This is Money’s independently compiled savings tables.

Kevin Mountford, co-founder of savings platform Raisin UK, says: ‘One-year bonds are an excellent option. There is not enough of a premium in two-year bonds yet to make them worthwhile.’

Rates could go even higher if the Bank of England lifts the base rate from 1.75 per cent in the coming months.

But you risk missing out by waiting for better deals. If you put away £10,000 until next September, you will earn £350 interest with the best one-year bond. 

But if you were to wait six months, then tie up your money for the remaining six months, you would earn only £185 interest even at a higher rate of 3.7 per cent.

If you chose to leave your cash in an easy-access account rather than your current account for the first six months and earn £75 interest at 1.5 per cent, you would still be £90 worse off.

Top rates also don’t stay around for long — sometimes just days. It is mainly smaller banks competing for your cash and once they meet their targets, they quickly pull top sellers.

High Street banks are still lagging behind. The best one-year rate is 1.75 per cent from Barclays. 

Santander pays 1.5 per cent to its 123 World and Select customers and 1.4 per cent to others. HSBC offers 1.25 per cent. NatWest does not have bonds generally on sale, while Halifax and Lloyds will offer a one-year bond at 1.5 per cent from September 14.

If you may need to access cash quickly, stick to easy-access accounts. You can’t usually take your money out of a fixed-rate bond until the end of the term.

How to find the best savings rates

Savings rates have been in the doldrums for many years but the situation was hugely exacerbated by the pandemic and the emergency base rate cut to 0.1 per cent.

But there are ways to ensure your cash is at least in the best of the bunch at all times. 

Checking top rates is essential, but it is also possible to make life easier overall and manage your savings pots in one place. 

Over the past few years a number of savings platforms have launched, offering savers the option to switch as and when better deals become available and manage accounts from different banks and building societies.

They each work slightly differently and include their own exclusives. To check out what’s on offer take a look yourself:

Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence. 

> Raisin* 

> Hargreaves Lansdown Active Savings*

> Flagstone  

Or you can view This is Money’s comprehensive best buy savings tables here, independently curated by savings guru Sylvia Morris:

> Compare best savings rates now