Looking to fix your savings? Why a 2-YEAR DEAL is my tip
One-year fixed rate bonds have been a firm favourite among savers for months. But a new sweet spot has emerged, and short-sighted savers could miss out on higher returns if they stick with the ever popular oneyear staple.
Two-year fixed bonds are the new star of the show, as inflation falls and interest rates are due to drop towards the end of the year. Lock in now and you are almost guaranteed to beat any one-year deal you will be able to get this time next year, according to the latest forecasts.
rates on fixed-term bonds have been bobbing up and down for the past week or so but savers can still fix at more than 5 pc for two years. rCI Bank has raised its two- year rate to 5.05 pc, matching that paid by Close Brothers Savings.
Several — including atom, Beehive, Hodge Bank, Union Bank of India and SmartSave are just short of the mark at between 4.96 pc and 4.9 pc.
If you go for the top one-year bond, you can earn slightly more
– 5.18 pc from SmartSave.
But to beat the 5.05 pc for two years, you’ll need to lock in at 5 pc when you come to renew your one-year bond in a year’s time.
and with interest rates expected to fall over the year, it’s doubtful you will find this high a rate.
Until now, savers have understandably been reluctant to tie up money for more than a year.
The cost- of- living crisis has meant we would rather have our money close to hand in easy access accounts or shorter bonds, such as six months to a year.
But thankfully, times of frightfully high inflation appear to be behind us. annual consumer price rises fell to 3.2 pc in March from a recent high of 11.1 pc in October 2022.
The Bank of england has been forced to pump up interest rates in a bid to contain inflation. Its base rate, now at 5.25 pc, is at its highest for 16 years and has been stuck there since last august.
The theory is if you make borrowing more expensive, people have less money to spend. In turn, this reduces demand for goods and slows price rises.
When inflation falls, the reverse happens and rates typically go down. as inflation edges slowly towards the Bank’s 2 pc target, money markets are predicting two interest cuts this year with the first happening in the autumn and bringing base rate down 4.75 pc. Savings rates will follow. The top two-year bond rates I named above are only on offer for those willing to buy online. The best High- Street rate sits far lower at 4.4 pc from Principality or 4.35 pc from Leeds BS and TSB.
remember that with a fixedrate bond, you can’t usually cash it in early — even if you need the money.
If you go for a fixed-term cash Isa you typically can, and all your interest will be tax- free. Isa rules dictate that providers must give you access to your money during the term, although you will pay a fee to get it out — typically the equivalent of six months’ interest.
But rates tend to be lower as there is less competition with fewer banks offering cash Isas. The best rates for two years are offered by Oaknorth (4.62 pc), Shawbrook (4.61 pc) and Secure Trust (4.6 pc).