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Five-year fixed savings fighting for top place

Five-year fixed savings fighting for top place

Category: Savings
27/02/2018

Savers may still be disappointed that they haven't enjoyed the full 0.25% increase after the Bank of England upped the base rate by that amount three months ago. However, rates are still heading upwards, with today's figures showing that the five-year fixed bond rate has risen by 0.24% compared with a year ago, now sitting at 1.98%.

Not only that, but there's been lots of activity in this market of late, with the Best Buys looking quite different today compared with the start of February, as the below table illustrates. This sees the top rate now being 0.11% higher and all top-six deals outpacing the previous highest rate.

Today – Best five-year fixed savings deal 1st Feb 2018 - Best five-year fixed savings deal
Provider Gross rate at £10K Provider Gross rate at £10K
Vanquis Bank 2.51% Secure Trust Bank 2.43%
Close Brothers Savings 2.50% Vanquis Bank 2.40%
Ikano Bank 2.47% Paragon Bank 2.40%
PCF Bank 2.47% Atom Bank 2.40%
Secure Trust Bank 2.46% Close Brothers Savings 2.40%
Milestone Savings 2.45% PCF bank 2.37%

"It is inevitable that those savings providers who offer the most lucrative interest rates will be prepared to improve deals to secure their position within the Best Buys, by even the smallest fraction," explained Rachel Springall, finance expert at moneyfacts.co.uk. "So far all increases have [predictably] come from the challenger banks."

Some of these providers have even increased the rates on their five-year fixed bonds twice in the last couple of weeks, including most notably Vanquis Bank, which now offers the market-leading rate. "This is great news for savers looking to invest over the longer term right now, but perhaps not such good news for those who already locked-in earlier this month," said Rachel.

Aside from continued challenger competition, tomorrow's closure of the Term Funding Scheme – a Government initiative designed to boost access to cheap funding – will hopefully fuel the fire of rate rises in the wider savings market, as providers should once again need savers' deposits to lend out. However, it could take a while for the closure to have an impact, as Rachel pointed out that providers can still use the cash from the scheme for another four years. Additionally, we're still quite a bit below the 3% five-year rate that was last seen in April 2016, so there's a way to go before we can say that the market has fully recovered.

Long-term versus short-term

With rates still historically low and ongoing speculations of another base rate rise, savers may be turning to shorter-term fixed rates. This could offer them both a decent rate and renewed access in as little as a year.

However, with savings providers realising the same thing, they may be inclined to work even harder to entice long-term savers, which could see these rates continue to rise for some time. Given ongoing uncertainty, Rachel concludes that "savers will need to make a call on whether they want to risk investing in a five-year fixed bond or hold off for a little while longer."

Whatever you decide – long-term, short-term or even easy access – why not check the savings Best Buys to find the deal for you.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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