Fix your rate and earn up to £50 extra next year

SAVERS could earn an extra £50 over the next year by using a fixed-rate bond to protect against falling interest rates.

Last week, Mark Carney, governor of the Bank of England, hinted that the base rate could drop to 0.25 pc.

The cut could come as soon as next week, after the meeting of policymakers — though some experts think the bank might wait until August.

For years, savers have turned their backs on fixedrate bonds in favour of easyaccess accounts as they wait for the base rate to rise from its historic 0.5 pc low.

In the past two years, they have pulled a huge £40 billion out of bonds.

But that strategy has been turned on its head now that we are on course to leave the EU.

In a fixed-rate bond, you are cushioned from any fall in rates, whereas with easy-access accounts, you are at the mercy of banks and building societies, which are highly likely to cut your rate, too.

Giles Hutson, chief executive of Insignis Asset Management, says: ‘Interest rates are going to stay lower for longer following Brexit. If you are comfortable locking up your money, fixedrate bonds make a lot of sense.’ Patrick Connolly, an independent financial adviser at Chase de Vere, says: ‘The long, hard slog for savers continues. If the base rate is cut, savings rates are likely to fall, too. If you are happy to tie up some of your money, stick to a one or two-year term.’ However, before you fix, you must weigh up how quickly inflation will rear its head. The fall in the value of the pound following Brexit means things we import from abroad are more expensive — and this will work its way through to what we pay for goods and services. Then, the Bank of England is highly likely to raise rates to keep the lid on the rise in the cost of living. But even in the unlikely event that base rate reaches 1 pc in 12 months’ time, fixed-rate bonds are the better option. The top easy-access account from internet bank RCI pays £145 a year on each £10,000. But you can earn £179 with Charter Savings Bank’s one-year fixedrate bond. A base rate cut of 0.25pc next week could bring the RCI Freedom account rate down to 1.2pc. If base rate rose to 1pc after six months — and your easy-access rate rose immediately in line — you would still be better off with the fixed-rate bond.

The 0.75 percentage point rise in base rate could bring your easy-access deal up to 1.95 pc.

Six months at 1.2 pc and 1.95 pc a piece would bring you in £157.50 — £60 in the first six months and £97.50 in the second.

It’s the same in the High Street, where the top easy-access rate is 1.26pc from Virgin Money Defined Access, if you make only three withdrawals a year.

Using the same scenario above, your total interest with this account is £138.50. While in the High Street’s top fixed-rate deal, Co-op Bank Britannia Bond, you would earn £150.

The top two-year fixed-rate deals are 1.91 pc from Charter Savings Bank and 1.9 pc from RCI Bank. Virgin Money and Leeds BS pay 1.4 pc in the High Street.

If rates rise to 1 pc in six months’ time, you will be better off in the Virgin Money Defined Access account, with £314.50 interest over two years against £300 in Co-op Bank’s bond.

But if rates stay lower for longer, the bond will prove the better choice.