Moneyfacts.co.uk is warning savers whose fixed rate bonds are maturing to expect a sharp fall in interest rates due to the devastating impact of the Government's Funding for Lending Scheme.
In September 2012, the average one-year bond offered a rate of 2.64%; that average has now dropped 1.05% to 1.59%. This means, on a £10,000 investment, savers will only earn £159 interest over a year, compared to £264 interest if they took out a one-year bond last September. The difference in five-year rates is even more dramatic. Savers coming out of a five-year bond now will find that the average rate has fallen 2.89%, from 5.17% in September 2008 to 2.28% currently.
Moneyfacts.co.uk's Editor Sylvia Waycot warned that savers whose fixed rate bonds are maturing are in for a shock when they realise the "catastrophic fall in savings rates over the last year". "The greatest difference will be noticed between the original rate of the longer-term bonds and today's equivalent rate," she said. "Sadly, getting the architects of the Funding for Lending Scheme to acknowledge any culpability for the devastating situation savers are left with is about as probable as them suggesting a solution."
Your savings provider will inform you when your fixed rate bond is nearing its maturity date. But be warned, if you don't act your savings will be automatically rolled over into a similar bond for another term.
Ms Waycot says savings interest can vary from provider to provider, so it is worth searching to see if you can find a more competitive home for your savings before your provider simply invests your funds in a similar fixed rate account. Remember, once invested, most fixed rate accounts don't allow early access or further additions, and if they do they normally charge a high interest penalty.
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