Fixed Rate Bond Savers About To See What A Difference A Year Makes

Written by Editorial Team

Fixed rate bond savers about to see what a difference a year makes

09 June 2009 / by Rachael Stiles

Savers who took out a one year fixed rate bond this time last year are about to find out how much difference a year can make to interest rates, when they look for a similar deal only to find that rates have dropped by almost eight per cent.

Urging savers not to waste any time in finding another fixed rate deal, moneysupermarket.com has highlighted the disparity between the rates that are now available in the fixed rate savings account market, compared to those available at this time in 2008.

A “new reality” awaits savers when they try to find a new deal after their one year fixed rate deals come to an end, the comparison website’s analysis has revealed; they face interest rate drops of as much as 7.9 per cent.

A year ago, the fixed rate bond arena was a saver’s market, moneysupermarket.com laments, with a number offering competitive rates of seven per cent or more, but many rates will have dropped drastically when the accounts reach maturity.

“Until now some savers will have been somewhat sheltered from the low rate environment, with their cash locked away generating excellent returns,” says Kevin Mountford, head of banking at moneysupermarket.com. But “these savers are about to come down with a bump,” he warns.

Finding savings rates at record lows, Mr Mountford ponders whether savers will turn to riskier investment options to get a return on their cash, such as stocks and shares.

But there is some light at the end of the tunnel for the cautious saver, he assures them, as there are several two-year fixed-rate bonds available offering around four percent interest—while this is far from the dizzy heights of last summer’s rates, it still offers savers some solace, Mr Mountford said.

“The golden rule for anyone coming to the end of their fixed rate bond deal is to pay attention to the rate they are getting,” he urges savers, “and switch to a new deal as soon as the interest rate drops off. If they allow their cash to languish in low interest paying accounts it could cost them hundreds of pounds in lost interest every year.”

According to moneysupermarket.com’s analysis of today’s savings industry, some of the most competitive rates available are with ICICI savings accounts, and Birmingham Midshires savings accounts.