Fixed term bond rates tumble but under-used notice accounts show resilience

Author: Anna Bowes
01st November 2019

With so much political uncertainty, best buy savings rates have suffered over the last few months, as competition in the market has waned.

Texaco Station at night

And, while 10-year UK gilt yields, which are often used as a barometer for interest rates have increased slightly since a low point in September 2019 - they are still paying less than the current Bank of England (BoE) base rate. And, with inflation remaining below the government target of 2%, arguably there is still less pressure on the BoE to increase rates.

But with a general election thrown into the mix, it's impossible to know what will happen to interest rates in the short term, never mind the longer term – hopefully there won’t be a knee-jerk reaction from the Bank of England. Whatever the outcome, we expect the BoE will be looking carefully at what effect the elected government and Brexit, when and if it happens, will have on the economy.

In the meantime, savers have a tough decision to make. Do they opt for fixed term bonds in order to protect against any further falls to savings rates, or leave their cash in an easy access account, in case rates improve.

The problem is, best buy 12-month fixed rate bonds have fallen by over 12% since the beginning of the year. Back in January 2019 savers could have opened a bond paying up to 2.05% AER – today the best non Sharia 12-month bond is paying 1.80% AER.

Over two years, it’s even worse. Best buy rates have fallen by over 20%, so while you could have opened a two-year bond paying 2.35% AER, today the best rate is only marginally more, at 1.85% AER.

Without a crystal ball, one of the options may be to have some in fixed rate bond to earn the best rates, even if they are lower than they were – while leaving some in easy access for future opportunities.

But there are also the lesser-used notice accounts that have been far more resilient against these latest rate cuts.

Savers can currently earn as much as 1.80% on a 95-day notice account – the same as the best non-sharia 12-month fixed rate bond.

Investec’s Notice Plus account is paying 1.80% AER on its 95-day option. And you can earn even a little more bit more if you are happy to give an extra months’ notice. Gatehouse bank is paying 1.82% AER in its 120-day notice account.

But the Investec account has a twist that can see the rate increase to a market leading level after three months. The account pays a ‘loyalty bonus’ of 0.05% if no notice requests are made for three months.

And even better, for those who worry they may need access to some of their cash in a hurry, this account has options that allow regular easy access to a proportion of the money. For example, the 95-day notice with a 20% easy access option is paying a basic rate of 1.70%, increasing to 1.75% if no notice withdrawals are made. The terms of the account which offer the easy access option can be a bit tricky to understand but when you get your head around it, it could be an ideal account to boost the interest you earn while giving you peace of mind that you can access at least some of your money immediately if necessary.

For more details about the Investec Notice Account and how the easy access options work, take a look at our article written when the account was launched at the end of last year.Please note that while the Investec rates are the same, other rates mentioned may not be.

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