Good news for savers as 2pc rates return

SHORT-TERM fixed bonds have burst through the 2 pc barrier for the first time in nearly two-and-a-half years.

A frenzy of rate rises came last week as new banks began competing in earnest for savers’ money.

On Thursday, Charter Savings Bank increased the rate on its one-year fixedrate bond to 2.05 pc.

Kent Reliance brought in a 2.05 pc deal a day later, while on Monday Investec upped its rate from 1.9pc to 2.05pc. Yesterday Close Brothers and Oxbury banks followed suit to pay 2.05 pc. Cynergy Bank has also gone up to 2 pc, followed closely by Shawbrook Bank at 1.96 pc.

Other providers have joined in, bringing the average rate to 1.06 pc, up from 0.89 pc last month, according to data analysts Moneyfacts. This is the largest monthly increase for more than a decade.

The new 2.05pc rate is well above the top easy-access deals of 1.2 pc from Zopa and 1pc with Goldman Sachs’ Marcus.

James Blower from website Savings Guru says: ‘The gap between easy access and fixed-rate bonds is almost double, which is enough to justify locking in for a year.

‘I wouldn’t look at fixing beyond 12 months. It is certainly a buoyant market for savers, and I can see very few reasons why it won’t continue to tick upwards in the coming months.’

Although rates could rise further, all the time savers wait for better deals and stick to easy-access accounts they are losing out on interest. If you do opt for a fixedrate bond, avoid the big banks. They continue to pay a pittance and you can earn eight times as much interest elsewhere.

This is because big High Street lenders are awash with cash, while smaller firms are keen to attract savers’ money to finance their lending.

The big banks have passed on little of the 0.65-point rise in base rate since December. Barclays, for example, has increased its one-year bond by just 0.15 points to offer a miserly 0.3 pc.