Fixed-rate savings deals have hit their highest levels in months as the sun begins to shine on savers again after a brutal winter.
Aldermore Bank on Friday morning announced a raft of new best buy accounts, including a one-year fixed-rate paying 1 per cent for the first time since November last year.
Its two-year fixed-rate bond, at 1.05 per cent, is also a new best buy, after Zopa earlier this week offered 1 per cent on a 24-month account for the first time since December.
Sunny days: Rates are growing after withering over winter
Meanwhile UBL Bank has launched best buy three and five-year deals, paying 1.21 per cent and 1.55 per cent, as the short week ends with some good news for rate-starved savers.
Aldermore’s three-year offer, at 1.1 per cent, is third after UBL and Zopa.
The raft of new best buys is the latest example of how rates are improving after falling to all-time lows since the coronavirus pandemic upended the UK economy last March.
‘The market is very competitive at the moment and, in the short term, I expect the current rate levels to hold and possibly even nudge higher’, James Blower, founder of The Savings Guru and an adviser to savings banks, said.
The top 12-month bond paid just 0.59 per cent in April.
The UK’s economic recovery following the depths of the pandemic-induced recession last spring has driven demand for borrowing and loosened the taps at UK banks which were previously concerned about large losses on bad debts.
The housing market has also been booming, spurred on by the temporary stamp duty holiday, leading to more mortgage borrowing and banks being after more cash as a result.
Derek Sprawling, savings director at Paragon Bank, said: ‘The stamp duty holiday ends this month, which means providers will have record numbers of mortgages to complete. Rate increases across the savings market are indicative of those higher lending requirements.
‘Another big factor is that the outpouring of funds from NS&I has now stopped and the market has stabilised.
‘After NS&I reduced its rates late last year, billions of pounds worth of deposits flooded the savings market and this led to many providers repricing in order to manage inflows but the latest figures from the Bank of England indicate that balances with NS&I have stabilised.’
Meanwhile, Anna Bowes, co-founder of the analyst Savings Champion, added: ‘Long-term UK Government bond yields have started to recover from a low point in the summer of 2020, and if this trend continues, hopefully we’ll see more competition in the fixed term bond market in particular.’
However, despite the jostling at the top of the best buy tables, Bowes cautioned: ‘The competition that is driving the rates upwards is really between only a small number of providers who are clearly looking to raise funds at the moment, often the battle can cease as suddenly as it started.’
Beyond the short-term, I don’t see cause for savings rates to increase steeply from here so my advice to savers is to grab any attractive deals that come out.
James Blower, The Savings Guru
James Blower added: ‘Beyond the short-term, I don’t see cause for savings rates to increase steeply from here so my advice to savers is to grab any attractive deals that come out.
‘Given most are from smaller banks who don’t have large appetites, many best buys are short lived and only staying on sale for a week or two and sometimes only a few days.’
He noted in particular that Aldermore’s new top one-year bond ‘looks mispriced’ given three previously top-paying bonds had been cut over the last week.
‘I expect it won’t last more than a week, so savers should take advantage and grab this while they can as I don’t expect rivals to follow suit.’
And despite the recent uptick in rates, longer-term fixed-rate bonds do not represent particularly good value considering the potential likelihood of rates rising further.
With five-year fixed-rates still at just 1.55 per cent, this just about keeps up with the current inflation reading and is below the Bank of England’s target of 2 per cent.
Anna Bowes added: ‘There is always the concern that if you lock into a fixed rate bond today, you might be missing out on better rates tomorrow. And that is a risk you may have to take.
‘If you are always waiting to see if something better might come along, while leaving your cash to languish in a poorer paying account in the meantime, then you will always be missing out on earning that little bit more.
‘One option, to try and hedge your bets, is to split your cash – putting some into a longer-term, higher paying account now and keep some aside in an accessible but best paying account to take advantage of the opportunity of higher rates if they come along.’
