Following quite a disappointing few weeks in the savings market, please excuse me for getting a little bit excited about some recent competition that has sparked a mini rate war among the fixed rate bond providers.
What is a Fixed Rate Bond and who is it good for?
As the name suggests, a fixed rate bond is a savings account that you put your cash into for a predetermined period of time and receive a fixed rate of interest for the term.
Most fixed rate bonds don’t allow access at any point until the bond matures, except on death. As a result of this lack of access, fixed rate bonds will normally pay a little more interest than easy access or notice accounts and are therefore popular with savers and the providers alike.
But as a saver, you must be sure that you don’t want access because in most cases you can’t withdraw the money, even with a penalty. It’s simply NO access.
For the providers, it is valuable for them to know that they have a pot of money that they can lend upon, that cannot be redeemed until maturity, so they are often willing to pay for it.
We do find that there will be times when a number of providers are trying to raise money at the same time and this is great news for savers, as we tend to see a little battle, like the one that is occurring at the moment.
What’s been happening?
April has seen some positive activity, especially in the 1-year bond table. At the beginning of the month, the best 1-year bond was paying 0.59% AER – however a little bit of jostling for the top spot between ZOPA, Shawbrook Bank and Atom Bank in particular, have seen things improve quite substantially.
Atom Bank has thrown down the gauntlet and launched a 1-year bond at 0.70% AER, the highest 1-year rate we’ve seen since early February and not just pipping the previous best rate from Shawbrook Bank of 0.63% AER, but smashing it. Will anyone challenge Atom again? Let’s hope so.
Atom Bank also kicked off some action in the 2-year bond table within the last couple of weeks by launching a market leading bond paying 0.78% AER, pipping ZOPA by just 0.01%!
However, ZOPA was not to be beaten, so retaliated by launching a bond paying 0.79% AER, to reclaim the title. However, its victory was short lived as early last week United Trust Bank joined the fray by launching a bond paying 0.80% AER – the first time we’ve seen a 2-year bond paying as much as this since early February. And it has yet to be toppled.
There hasn’t been quite as much action in the 3-year, 4-year and 5-year tables although Shawbrook launched a new 3-year bond paying 0.96% AER, once more pipping its competition - Hodge Bank – by just 0.01% AER, to take the top spot, where it has remained.
Over to the 5-year bonds and Hodge Bank remains in the top spot paying 1.35% AER, which can only be beaten by Sharia provider Gatehouse Bank.
Although there has been little activity among the best paying Sharia accounts recently, for 5 -year bond rates, Gatehouse Bank has steadfastly offered the top rate on the market paying an Expected Profit Rate of 1.40% AER.
Long may this continue – although as it is often the case that the battle can cease as suddenly as it started, so if you see something attractive, it probably makes sense to crack on and open it, or you could miss out.
Check out the Fixed Rate Bond and Sharia Fixed Term Bond best buy tables, to keep up with any changes that may occur after the time of writing.
What happens if rates continue to rise?
Of course, 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 is an accessible but best paying account to take advantage of the opportunity of higher rates if they come along.
We’ll be keeping an eye on the fixed rate bonds to see how long this activity continues.