A strange pattern is emerging in the world of savings and it’s sure to benefit the smartest savers.
Unsurprisingly, rates on easy access accounts are falling, following the Bank of England’s base rate cut from 5 per cent to 4.75 per cent last month.
But rates on other types of accounts remain stable, or even increase. This growing divide opens up a valuable opportunity.
Several providers of one-year fixed-rate bonds raised their rates last week and now pay a generous 4.65 to 4.8 percent.
These include SmartSave, Tandem Bank, Secure Trust and Close Brothers. Ziraat Bank offers a fixed 4.8 percent close to the maximum for one year through the Raisin savings platform.
Virgin Money (now part of Nationwide) increased its one-year tally from 4.11 per cent to 4.52 per cent. And newcomer Vida Savings has launched its first account – a one-year fixed rate bond at 4.77 per cent, also available through savings platform Hargreaves Lansdown.
Hargreaves has upped the ante by adding a cashback offer of up to £150 if you move £75,000 to its Active Savings platform before February 5. A large sum, but even if you move just £10,000 you will get £20, the equivalent. to raise the Life rate to 4.97 percent.
So if you see a fixed rate bond you like, take it. Because, once providers have put up their target amount in deposits, they quickly reduce rates to reduce the flow.
One of the reasons fixed rate bond rates are holding up is that more and more providers are looking for money to grow their business.
Savers who sign an agreement longer than one year can get an inflation rate more than double the current inflation rate of 2.3 percent.
Consider a fixed rate bonus if you have used up your annual Isa cash allowance of £20,000 and have sufficient funds in an easy-access account to draw on in an emergency. Its main advantage over easy access accounts is that the rate will not change throughout the term. But make sure you’re willing to tie up your cash.
One of the reasons fixed-rate bond rates are holding up is that more and more providers are looking for money to grow their businesses.
These include London-based BACB (British Arab Commercial Bank), Ziraat Bank, Stream Bank, Conister Bank, JN Bank, Vida Savings and Plane Saver credit union.
Newer banks tend to pay the best rates to convince savers to use them. But choose one covered by the Financial Services Compensation Plan and your money will be protected.
The scheme offers you up to £85,000 of cover (£170,000 in joint accounts) in the unlikely event that the provider runs into problems.
The second reason rates are so competitive right now is that savers are so enamored of easy-access accounts that providers need to appeal to them.
Savers added £14bn to easy-access accounts last month, Bank of England figures show. It’s the biggest jump on record, apart from a few months of the pandemic in which many households had no choice but to save as it wasn’t possible to spend on treats like holidays.
But the number of accounts paying 4.7 percent or more has halved in the past month, to just four, and rates are likely to fall further.
If all your cash is in easy-access accounts and you can afford to keep some for longer, now might be a good time.