by Derin Clark
One major impact resulting from the financial crisis caused by the coronavirus pandemic has been a sharp fall in savings rates.
As savings rates tumble, those lucky enough to be able to put money aside into savings accounts will see the interest earned on their deposits reduce. As easy access savings accounts rates have seen the biggest fall, many savers have been turning to fixed rate bonds to secure the best deals.
What are fixed rate bonds?
Fixed rate bonds are a type of savings account that require savers to put in a lump sum of money and leave it in the account for a set period of time. The term on a fixed rate bond can vary from just six months to seven years.
In exchange for keeping their money locked into the account, savers usually benefit from earning a higher interest rate than is normally offered on easy access accounts. Usually, the longer the term on the fixed rate bond, the higher the interest rate will be.
While fixed rate bonds are attractive to savers because of the higher rates being paid, before opening one savers should be aware that they will not usually be able to withdraw money from the account during the term without paying a penalty, if at all, and should be certain that they will not need to access the funds.
For those looking for a more flexible account, an easy access or notice account could be a better option.Banks and building societies are prepared to pay more interest on fixed rate bonds than other types of savings accounts, because they know that the funds will stay in the account for the set period of time.
This means that even a six month fixed rate bond will likely beat the top rate being paid on an easy access account. For example, currently the top rate being paid on a six month bond is 1.35 % gross, while the top rate being offered on an easy access account is 1.20%. So, for savers who are certain that they are able to leave their money in the bond for a six month period, at the moment they can get 0.15% more by choosing a six month bond over an easy access account.
Customers should be aware though that this is a per annum rate, so they will effectively earn half this rate over the six month term
What are the best fixed rate bonds?
Currently, the best fixed rate bond is being offered by RCI Bank UK, which pays 1.90% gross on its Fixed Term Savings Account on a five year term.
For those able to lock their money into a two year fixed rate bond, the challenger bank, Bank of London and The Middle East (BLME), offers the top two year rate on its Premier Deposit Account which pays an expected profit rate of 1.70% gross.
BLME, along with another challenger bank Habib Bank Zurich plc, offers the best one year fixed rate bond rate of 1.55% gross. BLME pays an expected profit rate of 1.55% on the one year version of its Premier Deposit Account, while Habib Bank Zurich plc pays 1.55% on its HBZ Fixed Rate eDeposit.
For those looking for a short-term fixed rate bond, Zenith Bank (UK) pays the best rate on a six month bond, with its Raisin UK 6 month Fixed Term Deposit paying 1.35% per annum gross.
All the current fixed rate bonds available can be found on the Moneyfacts.co.uk fixed rate bond charts. Product information correct as of 7 May 2020