Saving accounts pulled in less than a month
Savers have just 23 days to take advantage of market-leading fixed-rate accounts as high demand prompts providers to significantly cut the shelf life of new deals.
The Bank of England base rate has remained at an all-time low of 0.5% since March, having been cut from 5% in October last year and, with many experts forecasting the low base rate to remain for some time longer, savers across the board have been drawn to the security of fixed-rate bonds.
However, according to data provider Moneyfacts, providers are offering new deals for less than a month, meaning savers who hesitate could miss out on the best rates.
Historically, most providers offer fixed-rate savings accounts for 120 days, but this has fallen sharply in response to the plummeting base rate. In November last year, the average fixed-rate account was offered for 57 days, but 11 months later the average shelf life had fallen to just 23 days.
“The demand for fixed-rate investments continues to increase as savers look to maximise returns - such high demand means that bonds are being fully subscribed quickly, causing providers to pull many of the most competitive deals and replace them with new issues,” says Michelle Slade, spokeswoman for Moneyfacts.
Around 34% of savers are currently looking for fixed-rate acconts, according to Moneyfacts, with the average amount deposited standing at £40,076. Despite their popularity, returns on this type of account have fallen from an average of 6.7% last year, to just 3.95% in October.
“Savers with average amount invested will have seen the interest earned on their money fall by £1,157 to £1,612,” according to Slade.
TOP FIXED-RATE DEALS
1. Long term (five-year terms plus)
If you're looking for a five-year account, then Skipton Building Society pays 5.35% on deposits from £500, or Yorkshire Building Society pays 5.3% AER on deposits from £100.
Elsewhere, Halifax pays 5.25% AER on its five-year websaver fixed bond. You'll need to deposit £500 or more to qualify, and withdrawals are not allowed.
2. Medium term (three and four-year terms)
You don't have to fix for five years to get a rate of 5% plus, although generally speaking the shorter the term, the lower the interest rate you'll receive.
Barnsley Building Society pays 5% AER over four years if you deposit at least £100 in its online bond, or 4.8% over three year
ICICI Bank pays 4.7% AER on its three-year deal on £1,000 deposits and Yorkshire Building Society pays 4.65% on £100-plus deposits for three years.
Hinckley & Rugby Building Society pays 4.65% on its three-year fixed-rate postal bond - just be aware that this account requires a minimum deposit of £25,000.
Halifax pays 4.55% on its four-year websaver deal on deposits from £500.
Elsewhere, Birmingham Midshires also pays 4.65% over three years on deposits from £500.
3. Short term (one to two-year terms)
The AA pays 4.35% on its online two-year fixed-rate account. Or Kent Reliance, ICICI Bank and Birmingham Midshires all pay 4.25% for two years.
Saga, meanwhile, also pays 4.25% AER over two years on deposits from £1.
Barnsley Building Society pays 4% over two years or 3.1% for one year, on a deposits from £100. Santander (Abbey, Bradford & Bingley and Alliance & Leicester) meanwhile pays 4% over two years but only on deposits of £10,000 plus.
However, National Savings & Investments currently tops the best-buy tables with a new account paying 3.95% AER for one year. Other one-year accounts include a deal from Halifax that pays 3.5% AER for one year, or 2.75% over nine months, on deposits from £500.
Finally, if you like a good cause as well as a good rate, Coventry Building Society has relaunched its Poppy Bond. It pays 4.3% until 31 December 2011, on deposits from £500, and the society will make a donation equivalent to 0.2% of the total balance to the Royal British Legion 2009 Poppy Appeal.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
by: Hannah Nemeth
by: Moira O'Neill
by: Tom Wilson