One-year fixed-rate bonds and Isas have seen their biggest monthly rate cuts in almost 15 years in January.
The average one-year fixed-rate bond fell to 4.87 per cent this month, from 5.15 per cent last month.
This is the first time average rates have dipped below 5 per cent since July 2023, and is the biggest month-on-month fall since February 2009, new figures from rates monitor Moneyfacts show.
Fixed-rate accounts and Isas have been falling across the board for some time.
However, all is not lost for savers looking to stash their money away for twelve months, as there are a handful of providers still raising rates instead of cutting them.
Bucking the trend: One-year fixed-rate accounts and Isas have been falling across the board, but one or two providers have raised rates
They may need to be quick, though, as the best rates often don’t stick around for long.
On Friday, Hodge Bank boosted its one year-fixed rate to 5.1 per cent from 5.04 per cent and Tesco Bank raised its one-year account to 4.9 per cent from 4.7 per cent.
But if you want the highest interest rate, Al Rayan’s one-year fixed-rate deal tops the table paying 5.3 per cent. If a saver were to put £5,000 in this account, which is the minimum deposit, they would have £5,265 by the end of the term.
In the Isa market, Hodge Bank has also upped the rate on its one-year Isa per cent to 4.95 from 4.89 per cent.
> Find the top rates – check our savings tables to stay on top of the best buys
With the end of the tax year approaching, higher rate taxpayers with more than £10,000, or basic rate taxpayers with more than £20,000 saved in the best-paying savings accounts could find that they breach their personal savings allowance and have to pay tax on interest as a result.
Isas are one way to avoid this.
James Blower, founder of website Savings Guru says: ‘Isas are worth looking at, with eight providers paying 5 per cent or more on easy access and two fixed rates above 5 per cent, too.’
The very best one-year fixed-rate Isa pays 5.01 per cent and is offered by Shawbrook Bank. If you were to put £5,000 in this account you would have £5,251 by the end of the term. The minimum amount you can save in this account is £1,000.
Rachel Springall, finance expert at Moneyfacts, says: ‘A new Isa season should bring a flurry of activity from providers and, due to the interest rate rises of 2023 and upcoming Isa reforms, they may be in more demand from savers who are close to breaching their personal savings allowance.’
Despite one-year savings rates flailing for the most part, average rates are higher than they were at the start of 2023, so there are some bright spots for savers.
Bright spots: Savers coming off a fix may still find they can get a better rate
Springall says: ‘Many savers coming off a fixed rate will find better returns today if they want to lock into a deal of a similar term.
‘Longer-term fixed rates are currently returning less than one-year options on average, but with interest rates expected to fall this year, some savers may decide to fix for longer.
‘Savers who prefer to keep their cash closer to hand will find easy-access rates are much higher now than they were a year ago, but returns have dipped slightly month-on-month.
‘Savings providers will no doubt be aware of the ongoing murmurings of the Bank of England base rate coming down in 2024, but even if this doesn’t occur for the next few months, variable rates can still change.
‘Providers will be looking closely both at their interest margins, the swap market, and their own position in the top rate tables against their peers.
‘Swift movement can take place if they are sitting way ahead of their competition or if they are drawing in too much in deposits.’
Outside of one-year fixes, average rates on other accounts have also fallen – though not as dramatically.
The average longer-term fixed bond fell for a fourth consecutive month, going from 4.76 per cent to 4.46 per cent. This was its biggest month-on-month fall since February 2009, according to Moneyfacts.
A longer-term bond is one which has a duration of more than 550 days, or roughly 18 months.
The average one-year fixed Isa fell for a consecutive month to 4.72 per cent from, 4.99 per cent, the biggest month-on-month fall since March 2009.
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