Six-month Surge in One Year Fixed Interest Rates

By: MoneyFacts

The recovery in the savings market over the past six months has caused the average one-year fixed bond rate to surpass the average return that was available on a two-year fixed bond back in April 2017, according to the latest research by moneyfacts.co.uk.

Today, the average return on a one-year fixed bond has hit 1.14%, a marked increase from April, when the average one-year bond paid less than 1%. At the same time, the average two-year bond paid 1.13%, below the one-year average of today.

Rachel Springall, Finance Expert at moneyfacts.co.uk, said:

“It’s encouraging to see a noticeable improvement in the returns on one-year fixed rate bonds, as these accounts are likely to be a firm favourite among savers looking to lock into a decent rate over the shorter-term. The sentiment of rising interest rates on these bonds doesn’t appear to be wavering, as providers strive to leap-frog their competition to gain the spotlight at the top of the Best Buys.

“This welcome surge in the market has largely been fuelled by the challenger banks, with Charter Savings Bank, Milestone Savings and Vanquis Bank all having increased rates within the past month. This ongoing improvement to the market is likely to entice savers who want to avoid locking their money away for the longer-term, but still desire a safeguard for their cash. With the ongoing murmurings of an upcoming base rate rise, savers will much likely favour a one-year bond over a five-year deal.

“The biggest improvement over the last six months has been in the Best Buys, with the average return on the top six deals up 0.40% compared with April 2017, based on a £10,000 investment. Specifically, the average return on these top six deals was 1.46% in April, whereas today it’s 1.82%.

“The highest rate in the one-year fixed market now beats what was on offer from two-year bonds in April, with the best two-year return available at that time being 1.80% from Principality Building Society. BLME now pays 2%* over one year for investors with £25,000 to deposit, while Al Rayan Bank offers 1.90% gross*, closely followed by Kent Reliance at 1.85% based on a £10,000 investment. In comparison, the top deal in April was 1.51% from Paragon Bank, and savers would have had to lock into at least a four-year bond to earn 2%, offered by Paragon Bank and Ikano Bank.

“It’s taken just six months for one-year bonds to offer rates comparable to what used to require a two-year lock-in, thanks to more than 100 rate rises fuelling the fire in the one-year fixed bond arena. Savers would be wise to review the Best Buys very carefully and consider the market leaders.”

Note: These banks operate under Islamic finance principles, so the rate displayed represents the expected profit rate. The highest fixed bond rates mentioned are for new customers.

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