Is the end nigh for +7% saving rates?

Published by Rebecca Atkinson on 18 July 2008.
Last updated on 21 July 2008

Piggy bank

After months of attractive fixed-rate bonds, the tide may suddenly be turning and saving accounts with interest rates of over 7% are starting to vanish.

Birmingham Midshires and Bank of Cyprus have both pulled theirone-year fixed-rate bonds, which both boasted interest rates of over 7%AER.

Experts say the days of such competitive deals could be over.

Kevin Mountford, head of savings at moneysupermarket.com, says: "Ithad to happen sooner or later and it looks like things may have gone‘pop' for fixed-rate bonds. After months of providers outbidding eachother to top the table, the top two, Birmingham Midshires and Bank ofCyprus, have withdrawn from the game by pulling their best rates, whichis bitterly disappointing for savers."

One reason for the rates being pulled could be the falling cost ofwholesale funding. Banks have been offering generous rates on savingsin order to bring in customers - and their money - but the falling costof funding from other banks has eased pressure on their margins andmade it harder to them to maintain such high rates.

"Birmingham Midshires and Bank of Cyprus are unlikely to be the onlyproviders that decide enough is enough, and I fear that the days of 7%-plus fixed-rate bonds could be numbered," adds Mountford.

In light of this, those looking to secure a good fixed-rate account should act now.

SAGA currently comes out top of the fixed-rate savings league,offering an online account paying 7.12% AER for one year. You only need£1 to open this account, but you'll need to be aged over 50 to qualify.

For younger savers, FirstSave offers a one-year fixed account at7.1% AER - you'll need a deposit of £1,000 upfront though. Icesave hasa one-year account at 7.06% but again you'll need £1,000 upfront.

Both Anglo Irish Bank and the Post Office have one-year bondspaying 7.05% AER, on deposits of £500.

If you are happy to fix for longer, then West Bromwich offers anonline account paying 7.12% until 31 June 2010 on deposits from £1,000while Icesave pays 7.06% for either two years or three years, ondeposts from £1,000.

FirstSave also offers a two-year or a three-year account, both paying 7.1% on £10,000 deposits.

If you are after a fixed-rate account, you might want to considerICICI Bank's HISAVE Term Deposit account, which pays 7% AER forone year or 6.7% AER for six months. But you'll need to have an ICICIHISAVE savings account to qualify for this deal.

For find out all the best saving accounts on the market, read our round-up of today's best saving rates

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