A strange pattern is emerging in the world of savings – and it is sure to benefit savvy savers.
As you might expect, rates on easy-access accounts are falling, following the Bank of England base-rate cut from 5 to 4.75 per cent last month.
But rates on another type of account are staying put – or even rising. This growing divide opens up a valuable opportunity.
Several providers of one-year, fixed-rate bonds increased their rates last week and now pay a generous 4.65 to 4.8 per cent.
These include SmartSave, Tandem Bank, Secure Trust and Close Brothers. Ziraat Bank offers a near-top 4.8 per cent fixed for one year through the Raisin savings platform.
Virgin Money (now part of Nationwide) upped its one-year account from 4.11 per cent to 4.52 per cent. And newcomer Vida Savings launched its first account – a one-year fixed-rate bond at 4.77 per cent, also available through the Hargreaves Lansdown savings platform.
Hargreaves has upped the stakes by adding a cashback offer of up to £150 if you move £75,000 into its Active Savings platform before February 5. A large sum, but even if you move just £10,000 you’ll get £20 – the equivalent of boosting the Vida rate to 4.97 per cent.
So, if you see a fixed-rate bond you like then grab it. For, once providers have brought in their target amount in deposits they quickly cut rates to reduce the flow.
One reason fixed-rate bond rates are holding up is that more providers are looking for money to grow their business
Savers locking into a top one-year deal can earn a rate more than double the current 2.3 per cent rate of inflation.
Consider a fixed-rate bond if you have used up your full £20,000 annual cash Isa allowance and have sufficient funds in an easy-access account to get hold of in an emergency. Its key advantage over easy-access accounts is the rate won’t change for the full term. But make sure you are happy to tie-up your cash.
One reason fixed-rate bond rates are holding up is that more providers are looking for money to grow their business.
London-based BACB (British Arab Commercial Bank), Ziraat Bank, Stream Bank, Conister Bank, JN Bank, Vida Savings and credit union Plane Saver are among them.
Newer banks tend to pay the best rates to convince savers to use them. But choose one covered by the Financial Services Compensation Scheme and your cash is protected.
The scheme gives you up to £85,000 of cover – £170,000 on joint accounts – in the unlikely event that the provider runs into trouble.
The second reason rates are so competitive at the moment is that savers are so smitten with easy-access accounts that providers need to lure them away.
Savers added £14billion to easy-access accounts last month, Bank of England figures show. It’s the biggest jump on record, apart from a few months in the pandemic when many households had no alternative but to save as it was not possible to spend on treats such as holidays.
But the number of accounts paying 4.7 per cent or more halved in the past month to just four – and rates are likely to keep falling.
If all your cash is in easy-access accounts and you can afford to lock some away for longer, now might be a good time.