Savers with high-paying fixed rate bonds may soon face severe drops in the interest their money is earning – especially if they took out a one-year bond last autumn.
At the start of last October, the Bank of England base rate stood at 5%. Consequently, some of the market’s top paying were offering consumers high returns on their cash.
At the time, several popular fixed rate savings deals came with attractive rates in excess of 7% AER. However, as these bonds mature, consumers are likely to see the rate of interest earned on their savings drop dramatically.
Savings rate cuts
The Bank of England’s decision to trim the base rate to 4.5% on 8 October was the start of severe cuts which have left it at its lowest ever level. Some savers correctly guessed the October cut would lead to more interest rate reductions, and rushed to lock their money away in high interest accounts.
However, with the base rate now at just 0.5%, many savings accounts currently pay less than 1% AER.
People with money invested in last autumn’s fixed rate accounts will see their bonds maturing in the coming weeks. Once this happens, their savings are likely to be shifted into low-interest accounts.
Best buy savings rates
As a result, it is crucial that consumers with fixed rate savings make themselves aware of when their deals expire. Which? savings expert Rebecca Fearnley says: ‘While savers won’t match the rates they’ve been getting on their maturing bonds, there are some reasonable rates available. It’s important to shop around and not let your money languish in a low-paying account.
‘If you’re prepared to tie your money up for another year, the best fixed rate deals currently pay more than 3.5%. Otherwise, the best are paying around 3.3%. Watch out, though, as these headline rates often include a bonus, so you’ll need to switch again when this comes to an end.’
You can find the best savings account for you by checking out the .
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