Blow for savers as one-year bond rates hit record lows

by Laura Miller from interactive investor |

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Rates have tumbled on these popular savings deals, as customers are urged to act quickly when they see a decent rate.

One-year savings bond rates have fallen to all-time lows, leaving customers stuck with returns less than half what they were a year ago.

Data from research firm Moneyfacts has found average returns are now just 0.61% for 12-month deals, the most popular term length.

A year ago the average return on a one-year fixed rate bond was more than double 0.61%, at 1.28%. Just six months ago savers could get 0.85%, a third more than now. The best rate available last year was 2.1%.

The deals are falling for several reasons. Bank of England base rate, which is factored in to the amount high street banks pay savers, is just 0.1%.

Additionally, quantitive easing measures announced by the Bank of England earlier this month mean high street banks get access to cheaper money to lend, but have less incentive to pay decent returns on deposits for savers.

Rachel Springall, finance expert at Moneyfacts, said the change of fortunes for one-year fixed rate deals shows how fast they need to act to secure fleeting good rates.

The deals had a brief respite in September, when temporary increased competition from banks boosted the rates on offer. 

Springall said:

“One-year fixed rate bonds saw average rates rise for two consecutive months after the record low seen in August, however the average return has since fallen to a new low, fuelled by numerous top deals experiencing cuts, such as those from challenger banks.”

The cuts are because challenger banks rapidly hit their funding targets and so pulled or watered down their best deals.

But these deals at least seem to be hanging around for a while longer before being cut. The average shelf life of a typical fixed-rate bond rose to 39 days, from 28 last month, which was the lowest number of days since March 2009.

Rate cuts were found in virtually all savers’ product choices. The average easy-access account rate in November was 0.22%, and for easy access ISAs it fell to 0.31%. Average longer-term fixed rate bonds fell to 0.87%, down from 0.93% a month earlier.

Product choice fell slightly month-on-month, according to Moneyfacts. There are now 1,517 savings deals (including ISAs) on the market, the first fall since July. There are 389 fewer deals available than a year ago.

Deals that have been withdrawn include some market leaders, so savers may see some of these return to the market, said Springall, though she warned returns could be lower. 

Springall said:

“Market volatility may now force the hand of savers to review rates on a more frequent basis, rather than a month-by-month check, as rates are changing much more frequently.”

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