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Falling rates fail to deter savers

Falling rates fail to deter savers

Category: Savings

Updated: 29/09/2011
First Published: 29/09/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The demand for saving into fixed rate bonds has soared over the past few months, despite average rates falling.

Figures from Moneyfacts.co.uk show that in April 26% of all savers were looking to invest their funds into fixed rate savings accounts.

However, that number has increased significantly since, with almost half (45%) of savers in August searching for fixed rate bonds.

This upturn comes despite a fall in average rates since May.

Currently, the average one year bond pays a rate of 2.76%, down from 2.94% in May, while a two year product rate has dropped from 3.52% to 3.34% over the same period.

The most pronounced fall has come from long term bonds, with five year fixed accounts paying 4.05% on average, compared with 4.34% in May.

Michelle Slade, spokesperson for Moneyfacts.co.uk, said the figures show the average amount invested in a fixed rate bond is £42,993.

Savers that invested this amount in the average five year bond in May 2011 will earn £763 more over the five year term than a saver investing today.

"Volatility in the stockmarket has led more people to consider cash savings as a safe haven for their money," added Ms Slade.

"Demand for savers' money amongst providers has fallen in the last few months, leading to a reduction in the rates on offer.

"Lower money market rates mean that some providers are opting to raise funding through this method rather than through their savings book.

"If savers don't need access to their money during the term, then despite the fall in rates, fixed rate bonds still pay some of the most competitive rates in the market.

"The average one year fixed rate bond pays 2.76%, compared to just 0.92% on the average easy access account."

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