One-year bond rates fall for first time in a year

Bank Rate may have risen, but some savers are receiving less interest, writes Amelia Murray

The average rate of short-term fixed savings bonds has fallen for the first time in a year, despite Bank Rate rising. In 2017, savers saw rates creep up, mainly driven by less-established banks in need of customer cash to fund their lending.

However, rates have now dropped for the first time in a year. This is despite Bank Rate rising from 0.25pc to 0.5pc in November.

In January last year the average one-year fixed-rate bond paid 0.9pc. This rose to 1.18pc in December, according to Moneyfacts, the data firm. But the average rate has now dropped to 1.16pc. Experts are suggesting newer banks may have “dialled back” their top rates over the Christmas period.

Despite falling rates, demand for savings bonds increased by 3.3pc in December – a trend not seen on any other type of account.

Telegraph Money data shows that the rates of top one-year bonds have also been declining over the past few months.

In November, Atom Bank, the mobile-only provider, offered 1.95pc. This was withdrawn within weeks.

A month later Investec paid a top rate of 1.87pc. Now three providers – Atom Bank, Investec and Aldermore – offer market-leading one-year bonds paying 1.8pc.

Islamic providers pay higher returns but this doesn’t work like interest. Instead it’s an estimated profit rate that can go up or down.

If the rate does decrease during the term the banks will give you the option of withdrawing your deposit plus the profit earned at the original quoted rate.

Al Rayan and Bank of London and the Middle East (BLME) both offer a one-year fixed account that pays 1.85pc. You must have at least £1,000 to save with Al Rayan or £25,000 to open the BLME account. Both banks also offer 18-month bonds that pay 1.9pc.

NatWest is offering £125 to new and existing NatWest customers who switch to its Select, Reward, Reward Silver, Reward Platinum or Reward Black account. You must apply online before Feb 16 and complete the switch using the Current Account Switching Service, an industry-wide initiative, before March 16. You must fulfil the different account criteria to get the bonus.

NatWest is not the only bank to offer incentives. HSBC pays £200 to those who switch to its Advance or Premier account and stay for at least six months. M&S Bank offers a £125 gift card to switchers and £5 a month for a year if you can pay in £1,000 a month and keep two direct debits active.