Fixed rate bonds typically garner the greatest attention from savers, given the higher rates and guaranteed returns, yet our latest figures show that demand for such accounts saw a sharp fall ahead of the base rate announcement – despite the fact that average fixed rates rose for a further month.
The figures – taken from the latest Moneyfacts UK Savings Trends Treasury Report and compiled as at 1 November, just before the base rate rise – show that competition continues to be slowly pushing rates up in the fixed sector of the market, with challenger banks still keen to attract savers' cash. As a result, the average one-year ISA rate has risen by 0.04% to 1.08% this month, while the long-term equivalent is up by double that amount to 1.40%, and the long-term non-ISA rate has increased by 0.03% to 1.65%.
Only the average one-year fixed rate remained unchanged, at 1.14%, but this hasn't been enough to reverse the sector's recent trajectory; non-ISA fixed rates have now avoided reductions since January this year, while fixed ISA rates have risen for the third consecutive month, with this being particularly notable given the time of year.
The table below highlights the recent improvement in more detail. As you can see, all average rates are now comfortably above where they were at this point last year, with long-term rates seeing a particularly significant uptick. So why, then, aren't savers investing?
|Average Rates||Nov 16||May 17||Oct 17||Nov 17|
|One-year fixed rate (excluding ISAs)||0.93%||0.98%||1.14%||1.14%|
|Long-term fixed rate (excluding ISAs)||1.26%||1.40%||1.62%||1.65%|
|One-year fixed ISA rate||0.87%||0.92%||1.04%||1.08%|
|Long-term fixed ISA rate||0.98%||1.14%||1.32%||1.40%|
Source: Moneyfacts Treasury Report
Additional figures from the report show that savers have been turning away from fixed rate deals in their droves, with much of it thought to be due to widespread expectation of a rate rise. After all, the increase came as little surprise to many, least of all savers, many of whom hoped that the rise would lead to higher savings rates.
This meant they were less inclined to invest in fixed rate accounts in the weeks leading up to the announcement. The data shows that consumers sought to invest £27,498 in fixed rate accounts during October, a significant drop of 9.25% from the previous month (£35,026). Similarly, 24.16% of savers searched for a fixed rate deal during the month, a drop of 4.21%.
In both cases, the variable sector picked up the slack – despite the fact that variable rates have actually been falling – which suggests that savers aren't automatically reinvesting the funds from their maturing bonds into new fixed rate accounts, but are instead funnelling it into more accessible options. Analysis suggests that this is because they think that fixed bond rates will rise so they don't want to keep their money tied up, preferring instead to keep their cash accessible until rates have sufficiently risen.
But this means that they may be disappointed. There's no guarantee that providers will pass on the base rate rise, particularly challenger banks, as their pricing decisions aren't governed by base rate but are instead determined by their own finding requirements. Indeed, only 39 of 109 providers have so far confirmed that they'll be passing on at least part of the rise, with some not passing on the full amount and others not doing so immediately, so it could take a while before rates pick up by any extent.
This means that, if you want to secure the best possible return from your savings, it may be worth taking a look at the best savings accounts right now. The top one-year bond, for example, pays an expected profit rate of 2.00% and you only need to tie up your funds for 12 months, by which time savings rates may improve and you'd still have benefited from a decent return over the year.
Alternatively, if you want easy access to your funds, why not look to high interest current accounts? These can be ideal for small savings pots or for those who don't mind a bit of active management, and with rates of up to 5% on offer, you could keep your cash accessible while securing an inflation-beating return.
Whichever way you want to go about it, keep an eye on the Best Buys to ensure you're getting the best you can from your hard-earned savings.
Compare the best fixed rate bonds
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.