🔔 Sparks of competition in the fixed term bond market

Author: Anna Bowes
30th July 2020

According to the Bank of England, the amount of money held in cash has increased by over £46bn since March – an increase of 3.75%. All of this money has been pouring into cash even though interest rates have been at record lows. 

But we have seen a glimmer of hope for savers, as accounts have been launched recently, paying higher rates.

Over 83% of all cash held currently resides in easy access accounts – presumably as people want the flexibility to get hold of that money fairly quickly. This could be for emergencies or day-to-day living, especially in the case of job loss - and for some, to take advantage of investment opportunities.

Normally, tying your money up for longer will reap better rewards, however things have been turned on their head recently due to the tenacity of the NS&I accounts that are offering the best easy access rates. So, at the moment, savers can hold their cash in easy access accounts, whilst still earning some very competitive rates - even beating the best short-term fixed rates.

To compare, the NS&I Income Bonds - which is an easy access account - is paying 1.15% monthly gross, whereas you can earn 1.40% AER fixed if you tie up the money for five years – a little more (1.50% AER) if you are happy to open a Sharia account.

At the moment even the best buy short-term fixed rate bonds are paying less than the NS&I Income Bonds easy access account. However, there have been some encouraging signs of competition over the last couple of weeks from some of the challenger banks.

United Trust Bank launched a 1-year fixed rate bond paying 0.90% AER, which topped the best buy table when Allica Bank withdrew its bond that was paying 0.95% AER.

On the same day, Charter Savings Bank launched a rival account paying 0.91% AER.

Not to be so easily toppled, United Trust Bank retaliated by increasing its 1 year bond to 1% AER to reclaim the crown and this week has again increased what it has to offer - so now remains in the top spot for 1 year and 2 years, paying 1.10% AER and 1.20% AER respectively.

Even better, there have been some improved rates launched by Sharia provider QIB UK, via the Raisin UK platform. The 1 year fixed term deposit is now paying 1.20% AER* and the 2-year is paying 1.40%.* This is considerably more than the standard fixed rate bonds on offer, so they could be worth a look.

Cash ISAs have really suffered over the last few months and the best 1 year fixed rates fell to as low as 0.65% recently – but Charter Savings Bank has again bucked the trend by launching a market-leading 1 year Fixed Rate ISA paying 0.76% AER. This is still almost half the rate that was available at the beginning of the year, but it’s a start and so fingers crossed that it continues.

Finally, Cynergy Bank extended the accessibility of its joint market-leading variable rate cash ISA - Online ISA (Issue 4) - paying 0.90% to all customers. Previously this account had only been available to existing customers. This rate matches that offered by NS&I however, unlike the NS&I cash ISA, Cynergy Bank accepts transfers from existing cash ISAs as well as new subscriptions.

We haven’t seen any little battles like this for a while, so while it’s baby steps, it’s still good news and we can but hope that these sparks ignite into sustained and significant levels of competition.

*We are occasionally paid by some providers if you click through from our website and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).