Fixed savings rates may be rising, but that doesn't appear to be enticing savers to part with their cash for the long-term. Indeed, figures from the Bank of England show that savers are actually moving billions of pounds out of fixed rate bonds, and are putting it straight back into easy access accounts instead.
The figures show that around £3.6 billion has been moved out of fixed rate bonds in the financial year so far, and a further £504 million has been removed from cash ISAs. While the latter isn't particularly surprising - HMRC revealed last week that cash ISA investments are plummeting, and our own figures show that bond rates are far outperforming their cash ISA counterparts - what is surprising is where all that money's going to.
That's because savers have ploughed around £13 billion into easy access saving accounts so far this tax year, over and above the amount withdrawn from bonds and ISAs combined, despite the fact that variable savings rates remain among the lowest we've ever recorded.
Indeed, the top-paying easy access rate clocks in at just 1.25%, available from both Ulster Bank and ICICI Bank (the latter including a 12-month bonus), while the market-leading fixed rate bond comes from PCF Bank and pays an inflation-matching 2.60%. So just why are so many people choosing to keep their cash in poor-paying accounts?
Well, much of it could be due to the fact that even fixed bond rates aren't exactly high, which could be leading a lot of people to question the value of locking their money away for so long.
After all, even investing £10,000 in the market-leading fixed rate bond would only result in £260 in interest after the first year, and they'd have to keep their cash tied up for the full seven years. This particular account requires interest to be paid away, too, so savers can't even benefit from compounding.
Below you can see how much you can earn by investing £10,000 in the best savings accounts across the market, and as you can see, the difference between fixed bonds and easy access isn't really a lot to get excited about:
|Account type||Account||Rate||Interest earned on £10,000 after one year|
|Easy access||Ulster Bank eSavings||1.25%||£125.72***|
|Notice account||Secure Trust Bank 180 Day Notice (Issue 2)||1.65%||£166.02**|
|One-year bond||Atom Bank 1 Year Fixed Saver*||1.95%||£195|
|Medium-term bond||Al Rayan Bank Fixed Term Deposit (3 year version)||2.32%||£235.03**|
|Long-term bond||PCF Bank 7 Year Term Deposit||2.60%||£260|
|* BLME's one-year bond pays a higher expected profit rate of 2.00%, but only to those with at least £25,000 to invest |
** Interest compounded quarterly
*** Interest compounded monthly
Savers would only earn £134.28 more in a year by keeping their cash in a long-term bond compared with the best easy access account, and for many, the amount they'd lose out on is a small price to pay for flexibility. This is particularly the case given heightened base rate speculation, which means people simply don't want to lock their money away.
While there's no telling exactly when base rate will rise, it's likely to be in the next few years - economists are now predicting the first rise will occur by 2019 - and it's hoped that savings rates will follow suit.
As a result, savers don't want to be locked into fixed rate bonds for half a decade or more when there's a chance that they could secure a higher rate in the next few years; instead, they want to keep their cash accessible, so that it's ready to be invested into a decent account when rates eventually rise.
This means that, when their bonds mature, they're not automatically seeking another one, as may have been the case in previous years, with easy access deals winning the day.
So make sure you get a good one! Rates may be lower in this sector of the market, but that makes it even more important to ensure you're getting a good deal, which is why you should compare the best savings rates before you move your cash.
However, don't overlook fixed rates entirely - a one-year bond, for example, could be the ideal short-term home for your cash - and you may want to consider alternative options, such as high interest current accounts or even stocks & shares ISAs, depending on your needs, pot size and risk appetite. Above all, make sure you keep saving, in whatever way works for you.
Bonds about to mature? Compare the best savings accounts to find the perfect home for your funds
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.