What to do if you have a one year fixed bond maturing

This year has seen savers face the challenge of record low saving rates with rising inflation. Although inflation remains above the Bank of England’s target rate of 2.0%, and could rise to over 5% next year, the end of 2021 has provided savers with some good news as rates have slowly started to rise.

Rising rates will likely be welcome news to savers who locked their money into a one year fixed bond at the end of last year, with the hope that the savings landscape looked a little brighter 12 months later.

Indeed, the average rate on a one year fixed bond has risen over the past 12 months. On 1 December 2020 the average one year fixed bond rate stood at just 0.54%; 12 months later this had risen to 0.82% and today it stands at 0.83%.

Savers will know that the top rates in the charts surpass average rates, which means that savers a year ago and today can get a higher than average rate choosing the best rate in the chart.

On 18 December 2020 the best one year fixed bond rate in our chart was 0.80% AER from Tandem Bank. Savers who locked into this account a year ago will be pleased to see that if they are looking for a new one year fixed bond, the top rate is now 1.40% AER available on SmartSave’s 1 Year Fixed Rate Saver. Savers should be aware, however, that this account requires a £10,000 minimum deposit to open.

Those looking for a one year fixed rate bond requiring a lower minimum opening deposit will find several accounts offer highly competitive rates.

For example. Masthaven Bank’s 1 Year Fixed Term Account pays 1.39% AER and requires just a £500 minimum deposit to open.

Meanwhile, both United Trust Bank and Zopa have one year fixed bonds paying 1.37% AER. United Trust Bank’s UTB 1 Year Bond pays this rate and requires a minimum opening deposit of £5,000. Zopa pays this rate on its 1 Year Fixed Term Savings account, and a £1,000 minimum deposit is needed to open this account.

Investec Bank plc also currently has a highly competitive one year fixed bond rate of 1.36% AER, which is paid on its Fixed Rate Saver. A minimum deposit of £5,000 is needed to open this account.

These rates show that the one year fixed bond chart is more competitive than 12 months ago, but savers may be disappointed that rates have not increased further, especially with the threat of inflation rising to 5% or more next year.

Right now, it seems that rates may continue to rise, mainly due to challenger banks competing to attract saving deposits. If, however, the Bank of England increases base rate in the coming months, as many finance experts predict, it may see rates rise further.

Savers holding off locking into a new one year fixed rate bond should keep in mind that the economic climate remains uncertain. As such, there is no guarantee that savings rates will continue to rise and risk-averse savers may want to consider locking into a top paying one year account now.

Savers willing to delay fixing into a new one year fixed bond now may want to consider putting their savings into an easy access savings account while they wait to see if savings rates continue to rise.

Unlike most fixed rate accounts, easy access savings accounts have the flexibility of allowing savers to make further deposits and withdrawals. In return for this flexibility, rates on easy access savings accounts tend to be lower than fixed accounts.

Currently, the top rate on an easy access account available to new customers is 0.65% AER lower than the best paying one year fixed rate bond.

The top easy access account rate is Aldermore’s Double Access Account Issue 1, which pays 0.75% AER. A £1,000 minimum deposit is needed to open this account. Further additions can be made, but a lower interest rate is paid if more than two withdrawals are made per annum.

The next best paying easy access savings account is Investec Bank plc’s Online Flexi Saver, which has no restrictions on further additions or withdrawals and pays 0.71% AER. A £5,000 minimum deposit is needed to open this account.

Another option available to savers is to choose a notice account. Notice accounts can be a good compromise between fixed rate bonds and easy access accounts, as they often pay higher rates than easy access accounts but they require a notice period before savers can make withdrawals.

The top paying notice account is Secure Trust Bank’s 120 Day Notice Account which pays 1.10% AER. This is 0.30% AER lower than the top paying one year fixed bond rate, but 0.35% AER higher than the best paying easy access account. 120 Day Notice Account requires a £1,000 minimum deposit to open and allows further additions. Withdrawals are restricted to four interest withdrawals and three capital withdrawals per annum on 120 days’ notice.