Why it could be time for savers to snap up 5% two-year fixes

WE savers love an easy-access account. There is an incredible £910 billion sitting in them — over three times the £269 billion in fixed-rate bonds.

It may be tempting to stick with an account that lets you access your money at any time, but now is the perfect time to consider a fixed-rate bond.

rates on easy-access accounts are starting to fall, but those on fixed-rate bonds are still rising — but likely not for much longer, so act while you can.

In its forecast last week, the Office for Budget responsibility predicted inflation would fall below the Bank of England’s target rate of 2 pc within a few months — nearly a whole year earlier than forecast six months ago.

as inflation eases, it is likely interest rates will do too. Money markets expect the Bank of England base rate to plunge this year from 5.25 pc to 4.2 pc in the last quarter of 2024.

That makes easy-access account rate cuts more likely. Four providers — Paragon Bank, Close Brothers savings, virgin Money and Hampshire Trust Bank — have already pulled their top rates.

But fixed-rate bond rates have been edging up as competition among providers intensifies.

While the top easy-access rate is 5.08 pc from Charter savings Bank; you can get a higher rate on a one-year bond at 5.28 pc from smartsave.

The top rate for two years is now 5 pc after rises from Hampshire Trust Bank and Close Brothers. Hodge Bank also pays

5 pc and others may soon join in.

Taking out a longer-term fix may be hard, as your money is locked away until the end of the term.

But if your plan is to take out a one-year bond now then another when it matures in 12 months’ time, you could be better off going for a two-year bond. For if you earn 5.25 pc now for a year, you will need to find a new oneyear bond paying at least 4.75 pc next year to match the top 5 pc two-year bond available now. rates are likely to fall below this in a year’s time.

Five-year fixed-rate accounts are paying less than shorter-term rates and you may baulk at tying your money up this long.

The top rate is 4.54 pc from Hampshire Trust Bank or 4.53 pc from both shawbrook and Close Brothers.

But if you know you won’t need your cash, it could prove a good bet as rates are likely to fall.

a cash Isa can also be a good option for a longer-term fix, as you can close an Isa whenever you choose and get your money back. You may miss out on interest or have to pay a penalty, but you can get it in an emergency.

rates on five- year fixes are lower with Isas: you can get just over 4 pc from Close Brothers, United Trust Bank, secure Trust, Zopa along with Principality and Nottingham building societies.

If you do opt for a bond over one-year, remember to pick one that pays interest and lets you withdraw it at the end of every year, rather than one that pays out the lot at the end.

If you receive all of the interest at once, it counts towards your personal savings allowance in that tax year. This allowance permits you to earn up to £1,000 in interest if you’re a basic-rate taxpayer, £500 if you’re higher rate and you have no allowance if an additional rate taxpayer. Everything you earn above your limit is taxed at your income tax rate.

If you get all your interest at once, you are more at risk of breaching your personal savings allowance than if it is drip fed each year of your account’s term.