Fixed bond frenzy as rates shoot up to 1.35%

A fixed-rAte bond frenzy among banks vying for our money has pushed up rates to as high as 1.35 pc for one year.

this is more than double what was on offer in April, when rates were at their lowest, and twice the amount of interest paid by the best easy-access accounts. experts say savers should consider locking in to avoid missing out.

there have been 400 rate increases since the start of last month as banks compete to top the best-buy tables, according to research by website Savings Champion.

Last week the pace quickened as rates burst through the 1.3pc barrier for those tying up their money for 12 months.

Meanwhile, the number of one-year bonds on offer has soared by a fifth to 163, up from 134 earlier this year.

rachel Springall, Moneyfacts finance expert, says: ‘Banks have been leapfrogging each other to offer top one-year bonds. rates could rise further but savers run the risk of missing out if they wait and see.’

Savers had turned their backs on fixedrate bonds after rates tumbled.

About £7.9billion has come out of the accounts so far this year, while £189billion went into easy-access accounts.

A year ago, the best one-year bond with Paragon Bank paid 1.2 pc. But by April, the best deal paid just half this at 0.6 pc.

Yet since the start of the summer holidays, rates have been on the rise again.

Last week tandem Bank launched a oneyear bond at 1.31pc but it didn’t hold the best buy spot for long. investec raised its rate to 1.33 pc, its second rise this month.

Allica Bank trumped that hours later with 1.35pc. tandem Bank quickly followed by raising its rate to 1.35pc. Yesterday, Allica upped its rate again to 1.38pc while the tandem rate rose again to 1.37 pc.

Some banks, including OakNorth, Allica, tandem and investec, have raised their rates twice or more since the start of this month, when rates stood at 1 pc at best for

one year. Last week, United trust Bank upped its rates twice in 24 hours to pay 1.25 pc for a year and 1.3 pc for 15 months.

the best two-year rate emerged yesterday at 1.66pc from Allica Bank, topping the 1.57 pc from tandem.

But many savers will be wondering if they should hold off locking up their cash in case rates rise further.

James Blower, founder of consultancy Savings Guru, says: ‘there is competition for our cash from banks. they want to encourage savers away from easy-access accounts, so they have to pay for it. it’s hard to predict whether they will go any higher. But i would be surprised if they went as high as 1.5 pc for one year.’

Kevin Mountford, co-founder of savings platform raisin UK, says: ‘Banks need to raise money and rates are changing daily. ‘Grab these rates while you can.’ Whatever savers do, they should ditch the big banks, which pay just 0.15 pc at best on their one-year bonds. they do not have to compete as hard for cash, as savers tend to use their current account provider as a home for their savings. their rates for easyaccess accounts are as low as 0.01 pc.

Savers have the same level of protection with smaller banks as with the major players. the financial Services Compensation Scheme covers sums up to £85,000 per person if the bank runs into trouble.