In a bizarre twist, three-year fixed rate bonds are now at higher rates than their four-year equivalents, making three-year fixed term savings accounts more attractive to savers looking to earn the best interest they can without locking in for an extra year. If you’re solely looking for the best return on your savings, then you can get higher rates from longer term fixes. However, with BLME so dominant in the fixed rate tables, if you have over £85,000 to save, you’ll need to make sure you deposit this with different banking providers to be protected by the financial services compensation scheme.
Last week both PCF Bank and Tesco Bank launched new fixed-term bonds, and while these are a welcome addition, neither of them knock the Bank of London and Middle East (BLME) off their top spot in every fixed-term bond category.
We reveal how the new accounts launched this week compare to the rest of the market and where to find the best fixed rate bonds across one, two, three and five-year terms.
In July, 20% of providers reduced the rates or withdrew their one-year fixed rate bonds. While others have reduced rates, BLME and AL Rayan have held their rates and maintained their top spots in the one-year fixed chart. Digital-only bank Atom and high street challenger Metro Bank have entered the chart both with rates of 2.00% and 1.90% respectively.
|Bank of London and Middle East||2.10%*||£1000|
|Al Rayan Bank||2.07%||£1000|
Currently, the best two-year fixed rate pays 0.25% more than its one-year equivalent. If you put £10,000 into the top rate two-year fixed bond you would earn a total of £235 per year in interest. The top one-year bond would earn you £210 for the year. Savers should consider if the uplift of £25 per year for committing your money for a second year is worthwhile when compared to keeping your options more open with a one-year bond or the benefit of an even higher rate from a three-year product.
The best savings accounts for two-year fixed bonds all come from the same providers as the one-year chart, except for position four where FCMB Bank (UK) enters the market.
|Bank of London and Middle East||2.35%*||£1000|
|Al Rayan Bank||2.32%*||£1000|
|FCMB Bank (UK)||2.12%||£1000|
*expected profit rate
Three-year bonds are currently paying higher rates of interest than four-year bonds. This is unusual and benefits savers looking to earn a higher rate of interest but with a reduced level of time to lock in their savings.
The providers offering the top savings accounts for a fixed three-year term is almost identical to the two-year chart, the only change being Metro Bank in fifth place.
As you save in longer term products, the effect of compound interest becomes even more important to maximise your savings income. In the current three-year chart only FCMB Bank (UK) has compound interest and in this case as a result the actual interest it pays over the term is slightly higher than its higher rate rival from Gatehouse Bank. For example, £10,000 saved with Gatehouse at 2.35% without compound interest earns £705 in total interest, whereas using our compound savings calculator, FCMB Bank (UK) at 2.30% with compounded interest earns a total of £705.99 in interest. In this example the difference is not huge,but shows that advertised rate alone is not a guarantee of earning the most in interest.
|Bank of London and Middle East||2.55%*||£1000|
|Al Rayan Bank||2.42%*||£1000|
|FCMB Bank (UK)||2.30%||£1000|
*expected profit rate.
The best fixed rate bonds are those with seven- and five-year terms. BLME has a seven-year bond paying 2.80% (expected profit rate) that can be opened with a minimum of £1000. They also have the top rate for a five-year bond at 2.75% fixed (expected profit rate) which again can be opened from £1000.
BLME continue to dominate the fixed rate bond market taking the top spots in every single fixed rate bond chart. However, remember that you will need to save any funds over £85,000 with another provider to ensure you have FSCS protection.
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