2018 rate hike cycle

Victoria Scholar, head of investment at Interactive Investor, issues inflation and interest rate warning

Despite that, I stuck my neck out on Sunday and warned that today’s best long-term fixed-rate savings bonds would soon be for the chop . I’ve now been proved right, and faster than I had anticipated. Which is bad news for savers.

I was specifically talking about the five-year fixed rate bond market, where returns depend on the outlook for interest rate movements.

Banks and building societies don’t want to commit to paying a high rate of interest for five years, if they expect interest rates to start falling in the next 12 months.

So the closer we get to pay peak interest rates, the point at which the Bank of England stops hiking base rates and start thinking about cutting them instead, the more nervous they’ll get.

So when the BoE’s monetary policy committee (MPC) unexpectedly froze rates at 5.25 percent last Thursday, as I was urging them to do , banks were always going to have a rethink.

Especially since Bank governor Andrew Bailey had suggested before the meeting that it was no longer clear that interest rates needed to keep rising .

Returns on five-year fixed rate bond rates actually peaked months ago. Now they have started to fall.

Last week, Tandem Bank was leading the pack by committing to pay savers 5.85 percent a year all the way through to 2028.

Now that rate has gone. Tandem has slashed it to 5.65 percent.

Short-term fixed-rate bonds still pay almost 6% (Image: Getty)

This isn’t a huge drop, obviously. For someone investing £10,000, it’s the difference between getting £13,287.84 over the five-year term and £13,162.78.

So that’s just £125.06.

Hardly the end of the world but still a little bit annoying for those who missed out.

JN Bank has stepped into the breach by offering today’s best buy five-year fixed-rate bond but it pays 5.80 percent, according to Moneyfacts.

That’s only slightly below Tandem but it’s showing us the direction of travel. While there is still a chance the BoE will hike interest rates again, markets reckon it won’t.

Even if it does, banks and building societies will be wary of hiking rates on long-term fixed-rate bonds because they know at some point in 2024, the BoE will cut. Possibly several times.

There are no guarantees, of course. I’m no oracle. But if I was lucky enough to have a lump sum that I could lock away for five years, I wouldn’t hang around in the hope of getting a better rate in a month or two.

I’d rather get a good interest rate today than hold fire in the vague hope of getting a slightly better one tomorrow. In practice, I might get worse.

And I’d have lost interest in the interim.

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It’s a different story with short term fixed-rate bonds. Providers are happy to continue paying rates of up to six percent on these, because the commitment isn’t as long.

RCI Bank is a good example. It’s pays 5.65 percent a year over five years, but stretches to 5.90 percent over three years.

FirstSave and Cynergy Bank’s three-year fixed-rate bonds pay an even more generous 5.95 percent.

In the one-year fixed-rate bond market, National Savings & Investments lead the pack paying 6.20 percent.

These are terrific rates but it mean savers will get them for a shorter period. And when they mature, savings accounts are likely to pay much less than today.

It doesn’t suit everybody to lock into a five-year fixed-rate bond, as you cannot access your money in that time.

But for those who are sure they can last the course, I’ll repeat Sunday’s message. Today’s long-term fixes are probably as good as it gets.

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Savings interest rates are on the rise (Image: GETTY)

Experts are sharing the best savings accounts of the week beginning September 25, 2023.

Interest rates are on the rise with some savings products offering customers a 6.20 percent rate.

High street banks and building societies have sought to bolster rates despite the impact of inflation on returns.

These rate rises have been implemented across easy access and notice savings accounts, as well as ISAs and fixed-rate bonds.

Here is a breakdown of the top savings interest rates for this week, according to money.co.uk:

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Easy access savings accounts

Notice savings accounts

Fixed-rate bonds

Cash ISAs

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Savers are looking for the best deals (Image: Getty)

Central banks across the world, including the Bank of England and the Federal Reserve, have raised base rates multiple times over the past year.

This has been carried out to mitigate the impact of soaring inflation with the UK and US seeing rates exceed five percent.

Despite this being detrimental to homeowners and people in debt, savers have benefited from the hiked rates.

Lucinda O’Brien, money.co.uk’s savings expert, broke down which accounts people should consider depending on their situation.

She explained: “Last week, the Bank of England’s monetary policy committee voted by a majority of five-to-four to maintain the base rate at 5.25 percent.

“This was the first time they hadn’t increased the base rate in nearly two years, so it is interesting to see how the market has reacted to this news. It could still be early days, but interest rates have not taken a dramatic turn which is good news for savers.

“Instead, there has been little change with some fixed-rate bonds still offering more than six percent. For example, Ford Money has a two-year fixed rate saver at 6.05%, which is a competitive rate to lock in for 24 months.

“If you would prefer to access your savings at a time that suits you, then it’s worth exploring notice savings accounts. They are still offering strong rates with a 35-day notice account from Monument Bank at 5.15 percent.”

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