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One-year Fixed Savings Interest Rates Hit Highest Level Since Base Rate Cut

Personal_Finance / Savings Accounts Jul 11, 2017 - 02:22 PM GMT

By: MoneyFacts

Personal_Finance

It’s now been 11 months since the Bank of England cut the base rate to 0.25%, and many savers will have felt the impact. Thankfully, there have been some signs of life recently, with challenger banks increasing rates considerably on their one-year fixed rate bonds.

According to the latest research by moneyfacts.co.uk, the average one-year fixed bond rate has now hit 1.11%, which is the highest recorded rate since 4 August 2016.


A year ago, savers would have needed to invest in a two-year fixed rate bond to earn 2%, but today they have the option to pick a one-year fixed bond paying the same return, with a choice between Al Rayan Bank and Bank of London and The Middle East*. These two providers have greatly improved their bonds, as they were paying 1.50% last year, when the best one-year bond, from Charter Savings Bank, paid 1.79%.

Rachel Springall, Finance Expert at www.moneyfacts.co.uk, commented:

“The savings market has without a doubt been dampened by the base rate cut, but this hasn’t stopped challenger banks from reviewing their range this year and boosting rates to entice new investors.

“Clearly there is still much more room for improvement, as five years ago the average one-year fixed bond was more than double today’s average, at 2.57% compared to 1.11% - that’s a £146 loss of interest on a £10,000 one-year investment, quite the savings shock. Nevertheless, rates are improving overall on shorter-term savings right now, as even some easy access accounts can pay 1.11%. However, these low returns will still be eaten up by rising inflation, not to mention that the easy access accounts with the biggest returns tend to carry a large bonus which disappears after a year.

“There is evidence of larger numbers of deals improving too, not just the Best Buys, even if only by slight amounts. So far in 2017 we have seen 114 rate rises on one-year fixed bonds, whereas for the entire year of 2016 there were only 44 rises recorded in total. This shows how much more competition there has been in this area of the market.

“Overall, this is a positive halfway point in the year for savers, especially if they want to avoid piling their cash into a longer-term fixed account. Rates are improving and savers will have the opportunity to get a 2% return on a one-year bond for what was previously a two-year commitment.”

*Note: Al Rayan Bank and Bank of London and The Middle East are banks which operate under Islamic finance principles, so the rates displayed represent the expected profit rate. The highest one-year fixed bond rates shown are for new customers.

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


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