Indeed, the trend is likely to accelerate as the Bank of England appears to have completed its cycle of interest rate hikes. Early next year, the BoE may start cutting rates instead. When it considers doing so, today’s best buy savings rates will become even greater.
Just a few weeks ago, it was possible to get a one-year fixed rate savings bond paying 6.20 percent. That was a great result, but a bit of an outlier, from government-backed National Savings and Investments (NS&I).
Now it has been withdrawn altogether. The only fixed rate product NS&I offers today is its three-year Green Savings Bonds, which pay just 3.95 per cent.
Until recently the bonds were paying 5.7 per cent.
The best UK-based one-year fixed rate savings bond today, from rival bank Aldermore, pays 5.55 per cent.
That’s a big drop from 6.2 percent. A £10,000 saver would receive £550 interest over Aldermore’s 12-month term, £70 less than the £620 NS&I would have paid.
The exact same thing is happening with the longer-term fixed rate bonds, which peak at 6.05 percent.
It was still possible to get 5.85 per cent over the summer, from competitor Tandem Bank. Not possible now.
Just a week ago, JB Bank was paying 5.80 per cent per annum over five years. Today it pays 5.50 percent. That’s the best five-year rate but it’s unlikely to last long, given recent events.
Again, this may be a small incremental difference, but it adds up over the five-year bond term.
Someone earning 5.85 per cent a year on £10,000 over five years would generate a total interest of £13,287.84.
At 5.5 per cent they would get £13,069.60. That’s £218.24 less.
After more than a decade when savers got almost nothing in their accounts, having a savings rate of 5.5 percent is worth it. Although he lives.
Interest rates are rising as central bankers wage war on inflation, but consumer price growth fell to just 4.6 percent in October.
The Bank of England may soon be forced to start cutting rates, as the economy slows and may fall into recession.
Morgan Stanley predicts the first cut would come as early as May. Goldman Sachs now estimates in February.
Interest rates will probably start to fall before it arrives.
Banks will be reluctant to offer savings accounts that pay more than five per cent for five years if interest rates are heading back towards two or three per cent.
Of course, I could be wrong and interest rates could rise again, or at least fall at a slower pace than I’m predicting. Second guessing is never easy.
But in this case, I think it’s unlikely.
READ MORE: NS&I ‘hack away’ interest rate on new fixed savings account launched today
One area where savings rates are fixed is easy access accounts where Hampshire Trust Bank and Skipton Building Society pay 5.15 per cent.
Even here, rates have fallen slightly, since Paragon Bank was paying 5.25 percent just a few weeks ago.
But easy access accounts offer no real security. The moment interest rates fall, so does the rate you get. Immediately. Long-term fixed rate bonds give you more security.
It makes sense to take one out today, but only if you can tie up your money for the full term of the bond as there are penalties for early withdrawals.
So they are not for everyone.
But for those who have been considering a new savings account, I see no point in waiting for rates to rise. They are more likely to fall. The process has already started.
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