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One-year Savings Bond Rates Soar, While Five-year Deals Rise Modestly

Personal_Finance / Saving Bonds Jan 16, 2019 - 11:21 AM GMT

By: MoneyFacts

Personal_Finance

Starting a new year can be a great time to review the top savings rates, and reassuringly, average rates on one-year fixed bonds have hit a four-year high, according to the latest research by Moneyfacts.co.uk. However, this encouraging start to 2019 has not been seen in the five-year fixed bond market, with rates (although rising) not rising at the same pace.

Statistics released today show the Consumer Prices Index (CPI) fell to 2.1% during December, meaning 94 fixed rate bonds and 6 fixed rate ISAs (based on a £10,000 deposit) can now match or beat inflation*. Within that, 82 fixed bonds and 4 fixed ISAs beat 2.1%, still a small share of the standard savings market.


Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Savers have reason to be optimistic entering 2019, as competition in the market continues to push rates higher, and inflation fell for the second month running. This time last year inflation hit 3%, which meant that not one single standard savings account could beat it. One year later, savers will breathe a sigh of relief that their cash can provide a real return on a selection of fixed bonds.

“Those savers hoping to get a competitive return on their cash but who don’t want to lock their money away for too long may be pleasantly surprised by the returns on offer within the one-year fixed bond Best Buys. In fact, the top one-year bond pays 2.10% today, much higher than the best rate recorded 12 months ago (AI Rayan Bank, 1.85%).

“One key area of growth has been the influence of challenger brands and Islamic banks, who continue to up their rates to get a prominent place in the Best Buy charts. This in turn has meant one-year deals have improved immensely over the past two years. In January 2017, the average one-year bond rate had plummeted to its lowest ever rate of 0.92%, but today the rate has risen by 0.56% (to stand at 1.48%). Further than this, in January 2016 (before the rate dropped significantly), the average one-year bond returned 1.47%, and so today’s rate is higher.

“At the same time, long-term fixed rate bonds are not keeping up the same pace, and this may well be attributed to consumer uptake. In a market of economic uncertainty, when there is speculation that interest rates will rise further in 2019, a five-year fixed bond may not be as attractive as a one-year bond.

“Still, throughout many of the months in 2018, five-year fixed bonds were the only haven to beat the level of inflation. However, savers can currently match 2.1% gross with a one-year bond (Al Rayan Bank), showing that as inflation falls and rates rise, savers will have greater choice when choosing an inflation-beating home for their funds.

“Any savers looking to get a top rate today would be wise to not ignore the more unfamiliar challenger brands and Islamic banks, as they offer some of the best deals around.”

*Data note: Please note that these savings product numbers only include deals that are available to all UK residents (this figure does not count each interest payment option for each account) based on a £10,000 deposit.

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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