The time may have arrived for savers to change tack. Rates on easy-access accounts are starting to fall, while those on fixed-rate bonds are stable or rising.
So if you’re looking for a top rate and can lock your money away for a set period, you should consider moving some money across.
I realise this may be a reversal of what you’ve done in recent months, but the market is changing rapidly.
In November, savers were moving their money from fixed-rate bonds to easy-access accounts.
This made good sense at the time, as easy-access accounts offered higher rates and greater flexibility.
But last month’s drop in inflation to 2.5 per cent, from 2.6 per cent in November, has led to a cut in easy-access rates – and more falls are likely.
Top rates: Last month’s drop in inflation to 2.5%, from 2.6% in November, has led to a cut in easy-access rates – and more falls are likely – making fixed-rate bonds a smart bet for returns
It’s enough to make money market traders bet there will be cuts in the Bank of England base rate this year from 4.75 per cent. Savings providers will be quick to pass on these rate drops to customers.
As easy-access rates fall, those on longer-term bonds are rising. Last week, for the first time in 18 months, we saw a five-year bond pay more than a one-year bond.
SmartSave launched a bond at 4.78 per cent, just ahead of the best one-year deal at 4.77 per cent from newcomer Vida. It was on sale for just a couple of days, so you need to grab these deals quickly.
Birmingham Bank pays 4.55 per cent for five years. Shawbrook, SmartSave and Close Brothers pay 4.52 per cent.
The best two-year bond is from Birmingham Bank at 4.71 per cent, while Atom pays 4.7 per cent.
Check the best cash Isa rates in our savings tables
Whichever length of bond you choose, make sure you pick one that pays interest each year rather than just at the end of term so you can make the most of your personal savings allowance every year – this allowance gives the first £1,000 interest a year for basic rate payers tax-free, or £500 for higher-rate payers.
And make sure you can tie your money up, as you won’t usually be able to access it before the term is up.
If you have not already used your Isa allowance this tax year, these tax-free products may be an even better option than a standard easy-access or fixed-rate account.
Top rates stand at 4.55 per cent from Castle Trust Bank, 4.54 per cent from United Trust Bank, and 4.53 per cent from Shawbrook Bank.
You normally can’t withdraw money from a fixed-term Isa – but unlike standard fixed-term accounts you can close them early.
You’re likely to face a penalty of some of the interest you’ve accrued, but at least you know you can get to your money in an emergency.
