The best deals as savings rates plunge below 5pc

Interest rates on long- term savings have fallen below 5pc as providers begin a race to the bottom.

While variable rates have continued to rise, the average one-year fixed bond fell to 5.36pc, the first fall since March 2021. The average one-year fixed Isa fell to 5.2pc. The rates on longer-term fixed bonds fell to 5.02pc, whereas the average rate on longer term Isas fell below 5pc to 4.92pc.

While easy-access accounts continued to improve, with the average rate rising to 3.18pc or 3.29pc for Isas, the offerings on flexible holdings have lagged behind those on accounts where the money is locked away.

Savers remain able to beat the rate of inflation with their accounts if they choose the best offerings on the market, but will have to act quickly to secure deals, experts said.

Sarah Coles, of broker Hargreaves Lansdown, said: “Falling savings rates were on the cards from the moment the Bank first paused interest rate rises. It means we’re well past the peak, and on the way down. However, we’re not expecting the bottom to fall out of the market.

“One unknown quantity is the National Savings & Investments (NS&I) fundraising target. If this rises significantly in the Autumn Statement, it could mean it raises rates, which would stimulate new competition in the savings market and could see some great rates emerge.”

Previously, the best rates included a 6.2pc offer from NS& I, which was withdrawn last month. The government savings body slashed its rate on “green savings bonds” earlier this month, cutting it from 5.7pc to 3.95pc. For someone with £10,000 saved, that equates to a loss of £577 in interest across the three- year term of the bond.

The drop comes after the latest data suggested the Prime Minister’s target, set in January, of halving inflation, had been met. Inflation has fallen from a peak of 11.1pc in October 2021 to 4.6pc. This fall has played a significant role in the Bank of England’s decision to end the increases in the Bank Rate.

The Bank of England has held the Bank Rate at 5.25pc at its last two meetings, after increasing it 14 consecutive times from December 2021.

But in a glimmer of hope for consumers, major mortgage lenders have begun to lower the interest rates on their products. Santander, Virgin Money and TSB all announced cuts this week. Santander said it was reducing the rates on a range of its mortgages, including residential and buy-to-let, by up to 0.25pc, pushing some rates below 5pc.

Virgin Money reduced its 2-year fixed remortgage to 4.99pc , while TSB said it would cut its rates by 0.3pc.

Last week, HSBC slashed mortgage rates by an average of 0.15pc, taking 20 deals below 5pc.

Consumer champion Martin Lewis said that savers should hold in the short-term, in case NS&I savings targets mean that the Treasury-backed body improves rates again.