At last, some good news for savers as interest rates on fixed bonds nudge up towards 2.5%
Savers are flocking back to fixed bonds as rates burst through the 2.5 per cent barrier to a seven-year high.
During the pandemic, savers turned their back on bonds and withdrew £21.5 billion as rates plummeted. But the tide is now turning, with £1.5 billion flooding back into these accounts in March and April.
At the start of the year, the best one-year deal was just 1.36 per cent. But you can now earn a top 2.6 per cent from Atom via its smartphone app and 2.57 per cent with Cynergy Bank.
On the up: At the start of the year, the best one-year fixed bonds deal was just 1.36%, but you can now earn a top 2.4% with Investec Bank
This is the highest rate on offer since May 2015, according to data analysts Moneyfacts.
Yet those with fixed deals due to end soon must be on their guard or they could end up locked into accounts paying just 0.1 per cent.
Just last week investment firm Hargreaves Lansdown warned that savers think they are earning a better rate of interest than they really are.
When a savings bond matures, some banks and building societies put your cash back in the account from which you originally made the deposit.
Others, including Halifax and Santander, dump it in a lowly easy-access account paying 0.25 per cent at best.
But a growing number of providers, including National Savings & Investments (NS&I), automatically reinvest your money in a new fixed-rate bond unless you tell them not to.
You then have a short window to get your money out after which you are stuck with the account until the term ends. Providers will write or send an email to let you know your bond is maturing around three or four weeks before the end date.
NS&I, for example, will reinvest Guaranteed Growth Bonds into its current issues, which pay a miserly 0.1 per cent for one year, 0.15 per cent for two years, 0.4 per cent for three years and just 0.55 per cent for five years.
On a one-year bond you will see just £1 interest on each £1,000, while over a two-year term you’ll get a miserly £3.
By contrast, NS&I pays 0.5 per cent on both its Direct Saver and its Income Bonds, both of which give you easy access to your money.
Once your money is moved to a new fixed bond you have 30 days to get it out. The only exception is NS&I’s five-year bonds, which you can escape in return for losing 90 days’ worth of interest.
NatWest also gives you 30 days to get your money back free of charge. After this, it will cost you 90 days’ interest or what you have earned so far. The bank currently pays 0.2 per cent for one year or 0.25 per cent for two.
Others pay better rates of more than 1 per cent, but still don’t let you get your money back. Skipton gives you 21 days to get out.
At Coventry BS and Aldermore you get a fortnight to move your funds.
With Yorkshire BS you end up in its Fixed Rate Access Bond and you can withdraw the money during the first month. After that you pay a charge to access your cash.