Savers are being encouraged to “urgently” lock in the best available deals before rates fall even further.
The best one-year fixed rate has seen the largest cut in nine months – down from 5.05 per cent in September last year to 4.7 per cent now – whilst many other market-leading bonds have also been reduced, according to Moneyfactscompare.co.uk.
The top two- and three-year rates also fell month on month, the research showed. Meanwhile, the top four- and five-year bonds remained unchanged.
It comes as the base rate has been cut to 4.25 per cent with expectations that it will be cut once more again this year. As savings rates often fall in line with interest rates, providers have been reducing their returns.
With April’s inflation figure coming out at 3.5 per cent, its highest in over a year, and with many competitive deals paying just over 4 per cent, savers are earning barely over 1 per cent in real terms.
However, should they choose to lock their money away for a set amount of time, they could maximise their returns.
Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, explained that if savers were to invest £10,000 for five years now, they could earn up to £2,546 by the time their deal matures.
She said: “This is well over double the interest earned from the market-leader in June 2020, at just £933.
“While many savers may not be willing to lock away their investments for the long term, it is a worthwhile consideration as it helps to avoid base rate cuts.
“It is imperative that during a period of harsh reductions, savers take the time to carefully review any deals they are considering and seek independent advice if needed.”
A fixed-rate bond is a savings account that offers a consistent interest rate for a set amount of time and means you can’t easily take your cash out.
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Such rates may be better suited to medium and long-term savers who can afford to set their cash aside.
Easy access rates often offer slightly less in terms of interest but do mean they can be withdrawn from at any point.
Myron Jobson, senior personal finance analyst at interactive investor, said with further cuts to interest rates being a question of when, not if, the best savings rates are on “borrowed time”.
He said the simple message for savers is to “get a move on to nab the best deals before they’re gone”.
“There is no substitute for shopping around to find the best savings rates.
“Comparison websites make it easy to do so. With so many providers out there, you have a lot of options to choose from to find the right savings account to suit your needs.
“Consider how long you can afford to keep your money in savings. Research the various options, compare rates and select one that aligns with your needs.”
He advised those who can afford to put money away for at least five years to do so for the potential of long-term inflation-beating returns that far outstrip savings rates.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said the Bank of England’s decision to slash rates by 0.25 per cent in May will have depressed fixed rates, in general, a little, but longer-term rates were holding up.
“Longer fixed rates rely more on gilt yields for pricing. The higher gilt yields go, the higher swap prices go and that enables banks to offer higher fixed-term rates to savers.
“Recently, we’ve seen longer-dated fixed terms hold up, because long-term gilt yields have been rising.”
This is a result of market movements in the US and President Trump’s plans to cut taxes and spend more, making its way to the UK.
Coles added: “Bonds over the pond set the direction of prices, UK bonds follow in its wake. Of course, the one certainty in the market at the moment is uncertainty. With global politics such an unpredictable beast, it’s vital not to pin your plans on forecasts.
“Instead, it’s worth picking the right kind of account for you and checking online banks and savings platforms for the best possible deals.”
The best savings deals on the market
Currently, the best five-year bond is with Hampshire Trust at 4.46 per cent, with a minimum deposit of £1 and a maximum of £250,000.
For a three-year deal, JN Bank offers 4.45 per cent, with a minimum deposit of £100 and a maximum of £500,000.
If you’re looking for something a little shorter, Habib Bank Zurich has a 4.4 per cent deal, and Tandem a 4.38 per cent one-year fix.
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