Big blow for fans of five year bonds

SAVERS with five-year bonds that are maturing soon are facing a huge drop in income.

In 2011, the best five-year fixed deals paid as much as 4.5 pc. Since then providers have slashed rates — with even more cuts since Bank of England base rate hit 0.25 pc last month.

Today, the best five-year bond pays 2 pc from Hampshire Trust bank.

Someone with £50,000 will see their income fall from £210 a month to £88.

Top one-year fixes pay only slightly less. Charter Savings Bank pays 1.38 pc, while RCI Bank UK offers 1.35 pc. Money at RCI is protected under the French savings scheme, which means 100,000 euros (£85,000) is safe if the bank did hit the buffers.

Banks pay more on money kept in current accounts. Santander offers 3 pc on balances between £3,000 and £20,000. But this rate will be halved to 1.5 pc from November 1.

Other providers cap the amount they’ll pay interest on.

TSB pays 5 pc on up to £2,000 and Nationwide pays the same for a year on up to £2,500. Lloyds pays up to 4 pc on up to £5,000.

Another option is Premium Bonds. You’ll generate an average return of 1.25 pc a year on up to £50,000 — but it’s not guaranteed.

Each month there is a prize draw where you stand a chance of winning £1 million, but could equally end up with nothing. All of the money is 100 pc guaranteed by the government and prizes are tax-free.