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Top fixed bond rate highest in 10 months

Top fixed bond rate highest in 10 months

Category: Savings
27/02/2017

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Challenger banks are causing a storm in the fixed rate bond sector, and happily, it's the highest rates in the market that are seeing a particular boost. This will come as welcome news to those seeking to lock their cash away and secure decent returns in the process, with our savings Best Buys having seen a definite improvement in recent weeks.

For example, our figures show that the top one-year fixed rate bond has risen to 2.00%, an increase of an impressive 0.60% since January, and the first time in 10 months a one-year fixed rate has stood at 2.00% or higher. Similar improvements can be seen in the two and five-year sectors, too, as the table below highlights – rates may be down compared with a year ago, but the recent uptick can clearly be seen:

Feb 2016 Aug 2016 Jan 2017 Today
Highest Paying One-Year Fixed Rate Bond 2.10% 1.66% 1.40% 2.00%
Highest Paying Two-Year Fixed Rate Bond 2.75% 1.81% 1.60% 2.10%
Highest Paying Five-Year Fixed Rate Bond 3.35% 2.30% 2.05% 2.40%
Source: Moneyfacts.co.uk Compiled 27/02/2017

"Savers have been waiting patiently for some good news and at last there is some light at the end of the tunnel," said Charlotte Nelson, finance expert at Moneyfacts. "This sudden boost to rates means that savers looking for a deal today will be significantly better off than even six months ago. In fact, this month so far has seen 53 rate rises to fixed rate bonds, which far outweigh the three rate rises we saw over the same period last year."

Challengers to the rescue!

But just why have rates improved so much in recent weeks? Well, it's all down to challenger banks, many of whom have only recently entered the sector and still need to attract savers' cash. They may not be that well-known, but don't let that put you off – they still come with the same financial protection as their better-known counterparts, and with the offer of higher rates, they could be the ideal solution!

"This spike in competition all boils down to challenger banks trying to leapfrog their way past the competition to the top of the Best Buys," explained Charlotte. "These lesser known brands have no widespread physical presence in the savings market, and the best way to become established and have savers take an interest is to offer the best rates in the market, while the main banks continue to have little appetite for attracting savers."

This is reflected in average rates. Our figures show that, while average bond rates have risen, they haven't increased by as much as the best rates in the market, as it's only challengers who are improving their offerings. For example, the average five-year fixed rate bond boasts a rate of 1.78% today, an increase of 0.11% from last month, while the one-year fixed rate bond has increased by 0.03% from 0.92% in January, standing at 0.95% today.

In contrast, the highest paying five-year bond has risen by 0.45% compared with January, while the top one-year rate has risen by 0.60%, so it's clearly challengers who are leading the charge.

However, as Charlotte concludes, "this may all be a storm in a teacup, particularly with the apathy from the larger providers meaning that the savings market is unlikely to turn around anytime soon, so savers looking for deals would be wise to act sooner rather than later".

That means it's time to compare the options! If you're looking to squirrel away your cash for a few years, now could be a great time to do it, particularly if you're happy to consider a challenger bank as your funds' new home. Check out the best savings rates in the market to see why these lesser-known names are worthy, and see if you can find the right deal for you.

Challenger banks are causing a storm in the fixed rate bond sector, and happily, it's the highest rates in the market that are seeing a particular boost. This will come as welcome news to those seeking to lock their cash away and secure decent returns in the process, with our savings Best Buys having seen a definite improvement in recent weeks.

For example, our figures show that the top one-year fixed rate bond has risen to 2.00%, an increase of an impressive 0.60% since January, and the first time in 10 months a one-year fixed rate has stood at 2.00% or higher. Similar improvements can be seen in the two and five-year sectors, too, as the table below highlights – rates may be down compared with a year ago, but the recent uptick can clearly be seen:

Feb 2016 Aug 2016 Jan 2017 Today
Highest Paying One-Year Fixed Rate Bond 2.10% 1.66% 1.40% 2.00%
Highest Paying Two-Year Fixed Rate Bond 2.75% 1.81% 1.60% 2.10%
Highest Paying Five-Year Fixed Rate Bond 3.35% 2.30% 2.05% 2.40%
Source: Moneyfacts.co.uk Compiled 27/02/2017

"Savers have been waiting patiently for some good news and at last there is some light at the end of the tunnel," said Charlotte Nelson, finance expert at Moneyfacts. "This sudden boost to rates means that savers looking for a deal today will be significantly better off than even six months ago. In fact, this month so far has seen 53 rate rises to fixed rate bonds, which far outweigh the three rate rises we saw over the same period last year."

Challengers to the rescue!

But just why have rates improved so much in recent weeks? Well, it's all down to challenger banks, many of whom have only recently entered the sector and still need to attract savers' cash. They may not be that well-known, but don't let that put you off – they still come with the same financial protection as their better-known counterparts, and with the offer of higher rates, they could be the ideal solution!

"This spike in competition all boils down to challenger banks trying to leapfrog their way past the competition to the top of the Best Buys," explained Charlotte. "These lesser known brands have no widespread physical presence in the savings market, and the best way to become established and have savers take an interest is to offer the best rates in the market, while the main banks continue to have little appetite for attracting savers."

This is reflected in average rates. Our figures show that, while average bond rates have risen, they haven't increased by as much as the best rates in the market, as it's only challengers who are improving their offerings. For example, the average five-year fixed rate bond boasts a rate of 1.78% today, an increase of 0.11% from last month, while the one-year fixed rate bond has increased by 0.03% from 0.92% in January, standing at 0.95% today.

In contrast, the highest paying five-year bond has risen by 0.45% compared with January, while the top one-year rate has risen by 0.60%, so it's clearly challengers who are leading the charge.

However, as Charlotte concludes, "this may all be a storm in a teacup, particularly with the apathy from the larger providers meaning that the savings market is unlikely to turn around anytime soon, so savers looking for deals would be wise to act sooner rather than later".

That means it's time to compare the options! If you're looking to squirrel away your cash for a few years, now could be a great time to do it, particularly if you're happy to consider a challenger bank as your funds' new home. Check out the best savings rates in the market to see why these lesser-known names are worthy, and see if you can find the right 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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