Don’t fix for too long, savers told as £2.8 billion is stashed in bonds

SAVERS are flocking back to fixedrate bonds as rates soar. But experts say they should choose shorter deals rather locking away cash long term.

The amount of money being paid into fixed-rate accounts hit a 12-year high last month, with £2.8 billion deposited — the highest level since November 2010, according to the Bank of England.

This is up from £9 million in early 2022, when the top one-year bond paid just 1.35 pc. The best rate now is 3.5 pc from Ahli United Bank on the Raisin UK site.

There is little incentive to choose two or five-year bonds as they do not pay much more interest — often just 0.2 percentage points extra on a two-year account, which would be £20 more a year on a £10,000 deposit, and 0.11 percentage points extra per year on a five-year fix, where the top rate is 3.61 pc.

Savers on one-year offers will also be able to cash in on a better deal after 12 months if rates rise further, as expected.

Kevin Mountford, co-founder of savings platform Raisin UK, says: ‘One-year bonds are an excellent option. There is not enough of a premium in two-year bonds yet to make them worthwhile.’

Rates could go even higher if the Bank of England lifts the base rate from 1.75 pc in the coming months.

But you risk missing out by waiting for better deals. If you put away £10,000 until next September, you will earn £350 interest with the best one-year bond. But if you were to wait six months, then tie up your money for the remaining six months, you would earn only £185 interest even at a higher rate of 3.7 pc.

If you chose to leave your cash in an easy-access account rather than your current account for the first six months and earn £75 interest at 1.5 pc, you would still be £90 worse off.

Top rates also don’t stay around for long — sometimes just days. It is mainly smaller banks competing for your cash and once they meet their targets, they quickly pull top sellers.

High Street banks are still lagging behind. The best one-year rate is 1.75 pc from Barclays. Santander pays 1.5 pc to its 123 World and Select customers and 1.4 pc

to others. HSBC offers 1.25 pc. NatWest does not have bonds generally on sale, while Halifax and Lloyds will offer a oneyear bond at 1.5 pc from September 14.

If you may need to access cash quickly, stick to easy-access accounts. You can’t usually take your money out of a fixedrate bond until the end of the term.