Bonds take a battering as rates fall again

THE Bank of England has held base rate steady at 0.75pc for another month — but this has not stopped banks and building societies chipping away at the rates they pay to savers.

Within hours of the decision, providers had shaved their offerings or withdrawn accounts from the marketplace.

Intense competition in the mortgage market means savers are squeezed as providers look for cheaper ways to raise cash.

A growing number of firms are paring back rates on fixed-rate bonds in a bid to push savers towards easy-access accounts instead. OakNorth Bank, often among the best payers, reduced the rate on its oneyear bond from 1.74pc to 1.56pc. That’s just a fraction more than you can earn on the top easy-access account.

Some providers now pay little or no extra if you tie up your money for five years, rather than one.

Skipton BS pays 1.2pc on balances over £500 or 1.3pc on balances over £20,000 for both periods. Atom Bank pays 1.5 pc for one or five years. Even where they pay more, you earn as little as 0.1 pc, worth just £10 extra interest a year on each £10,000.

Others pay more interest on their easyaccess accounts than on their fixed-rate bonds. For example, at Nationwide, you earn 1.21pc on its variable-rate one-year online Triple Access Saver, which lets you take out money three times a year.

But, if you tie up your money for a year with no access, you will earn a lower 0.75 pc. For two years, the rate is only 0.85 pc.

Savers, disenchanted with low-paying fixed-rate bonds, have been piling money into easy-access accounts. In just two months, they have put in £6 billion — bringing the total to £763 billion.

James Blower, founder of Savings Guru, says: ‘Providers are thinking up new ways of bringing in money cheaply from savers. They are not looking for longer-term money, as it can cost them more in the long run.

‘If you can get a good rate on a fixed-rate bond, it is probably worth it, as long as you don’t need access to your money. Savings rates are not going to rise any time soon.’

Patrick Connolly, of independent financial advisers Chase de Vere, says: ‘Usually, you are rewarded for tying up your money for a year or more. You need to ask yourself if you are getting any benefit from going for a fixed rate and forgoing use of your money for the period.

‘With easy-access accounts, providers can cut the rate at any time, and they rely on savers’ inertia when they do.

‘You should check your rate frequently and move if the rate is cut.’