Why easy-access rates may rise but fixed bonds won’t

SAVERS are being warned that fixedrate bonds are likely to have peaked. It comes over growing uncertainty as to whether the Bank of England will push base rate any higher to combat inflation.

Experts say savers should no longer wait around for the top fixed-rate deals to rise from their current level of 4 pc.

However, there is still more wriggle room predicted for easyaccess accounts to head higher.

Bank of England base rate has been rising since the end of 2021, up from a historic low of 0.1 pc to the current 4 pc. But last week, Andrew Bailey, the governor of the Bank, quashed the idea they will carry on climbing.

He said: ‘At this stage, I would caution against suggesting either that we are done with increasing bank rate, or that we will inevitably need to do more. Some further increase in bank rate may turn out to be appropriate, but nothing is decided.’

There is plenty of uncertainty with the risk that inflation could stay stubbornly high. Currently, it is expected to fall back sharply later this year from its current 10.1 pc and hit its 2 pc target by early next year.

If it does take its predicted course, we are likely to be close to the top of the savings rate increase cycle, experts say.

Kevin Mountford, co-founder of savings platform Raisin, says: ‘The Bank of England needs to bring down inflation, which means raising rates and, at the same time, avoid recession, which means not increasing them. If base rate does rise, there is more wriggle room on variable rate accounts than on fixed rates.’

This is because fixed- rate bonds and variable- rate accounts are priced differently.

Fixed-rate bonds reflect what wholesale money market traders think will happen to rates here on in. They have ticked upwards in the last few weeks — but this could be short-lived following the governor’s recent comments.

Variable-rate accounts, however, are priced on base rate — and we could see an interest rate rise later this month, when the Bank of England makes its decision on March 23.

Anna Bowes, from Savings Champion, says: ‘Andrew Bailey’s comments highlight the possibility we are close to the top of the interest rate increase cycle. However, there could still be one or two more base rate hikes, which should mean more rises to variable rate accounts.’

A spokesman for website The Savings Guru says: ‘Fixed rates are at their peak and are likely to fall back during the year. But there’s still room for easy-access rates to rise to as high as 3.5 pc if base rate hits 4.25 pc.’

Even if base rate does not rise there is still room for banks to pay more on their variable accounts. That’s because competition has returned to the savings market and providers have not increased their rates by as much as Bank of England rises.

Banks and building societies make money by paying savers less than they charge borrowers. Any money providers can’t lend can be deposited with the Bank of England and earn 4 pc, much more than they’re paying savers.

Last week, easy- access accounts breeched the 3 pc mark. The top easy-access rate comes from Zopa at 3.21 pc. Tandem pays 3.2 pc including a bonus of 0.35 percentage points for the first year, with an underlying rate of 2.85 pc. Shawbrook went up to 3.06, and Ford Money hit the 3 pc mark.

Coventry BS launched its online Limited Access Saver and Paragon its Triple Access Saver, both at 3.1 pc. Both accounts limit the number of withdrawals you make each year to six and three respectively.

Top one-year fixed-rate bonds come from Atom at 4.3 pc. Halifax has a new one-year bond at 4 pc, while National Savings & Investments pays the same rate on its one- year Guaranteed Growth Bond. Coventry BS pays 4.1 pc for one year and 4.35 pc for two.