The average rate of the top five fixed rate bonds is 3.89% - 3.34 percentage points higher than the 0.5% base rate. The margin between the leading rates and Bank rate is the widest it has been since November.
With Cahoot, the AA, Saga and Leeds Building Society having launched new fixed rate deals in recent days, could now be a good time to lock your savings rate?
Is a fixed rate bond right for me?
Before you are lured in by an attractive headline rate you need to consider whether or not a fixed rate product is the most suitable for your needs. There are a couple of major things to bear in mind: firstly, you cannot normally access your money during the fixed term without penalty so a fixed rate bond is not the best if you want to dip in and out of your savings. And many fixed rate accounts only allow you to make a single deposit at the time the account is opened making them ideal if you have a lump sum to invest, but are not suitable if you want to save monthly or on an ad hoc basis.
Also, be careful not to lock your money away for too long: remember, interest rates are at a historic low and although many economists expect base rate to remain at its current level for the rest of the year, it will start rising again at some point. You therefore risk being locked in to a rate which becomes uncompetitive if base rate starts to rise again during your fixed term. I'd therefore suggest not fixing for more than a year or two.
What are the leading deals?
If you have money you can afford to lock away, ICICI Bank's two-year HiSave Fixed Rate Account, pays the highest rate at 4.10%. This is available on balances of £1,000 or more.
Cahoot, which is part of Abbey and owned by the Santander Group, has also launched a new two-year bond. It is paying 4.01% on balances of £30,000 or more. Another alternative is a two year bond from Principality Building Society at 4.00%. The minimum deposit is £5,000 but it is only available to the over-50s.
If you don't want to lock your money away for two years, there are some competitive one-year bonds available and you don't have to take much of a hit on the interest rate. Again, ICICI Bank is offering the highest rate. Its one-year HiSave Fixed Rate Account is paying 3.90%. The minimum investment is £1,000.
The AA has just launched a new one-year bond paying 3.75% which is available for balances of £500 or more. The AA's savings accounts are provided by Lloyds Banking Group - the bank formed following the merger with Lloyds TSB and HBOS - and it shares a banking licence with HBOS. This is worth bearing in mind if you have other savings with any of the HBOS brands (Halifax, Bank of Scotland, Birmingham Midshires, Intelligent Finance and Saga) as only the first £50,000 is protected under the terms of the Financial Services Compensation Scheme (FSCS).
It is important to spread your money around if you have a significant amount in cash savings - read our article 'Who owns who?' to find out how to keep your savings safe.
For more information on the latest savings rates, click here.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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