The rates being offered on fixed-rate bonds lasting one, two, three, four and five years are at the highest level for a year – despite the Bank of England base rate continuing to languish at just 0.5%.
The current average rate for the top five one-year fixed-rate bond, for example, is 3.47%, compared to 2.95% a year ago; an increase of 0.52 percentage points.
One, two and three-year ISA bond rates have also hit the highest levels since March 2010, with the average rate of the top five two-year accounts having jumped by 0.32 points.
Kevin Mountford, head of banking at moneysupermarket.com said: “Despite low interest rates, there is still healthy competition among savings providers.”
However, savers keen to take advantage of these deals must move quickly to avoid disappointment as swap rates, on which the rates paid by bonds of this kind are based, have been falling recently.
And some account providers have already started to react. Aldermore Bank, for example, has reduced the rate on its one-year fixed-rate bond from 3.55% to 3.41%.
Anyone wanting to get the current market-leading rate of 3.50% on £1,000 over one year via Yorkshire Building Society’s Online Bond is therefore well advised to make the switch now – or risk counting the cost later.
The same is also true of Chelsea Building Society’s two-year fixed-rate e-ISA, which pays 3.70% on £100 and above.
Mountford said: “Savvy savers need to be quick to take advantage as these rates may not hang around for too long.
“For those who are able to lock their money away for a while, the current rates on fixed rate bonds are very appealing and the rates are certainly stronger than the lower levels seen over the past year.”
What about easy-access accounts?
While many of the best fixed-rate bond deals remain available, providers of the most competitive easy-access accounts have already started to drop their rates.
The average of the top five easy-access savings rates are now at 2.95%, compared to 2.97% at the beginning of June.
You can get higher rates than that by shopping around for the best accounts on moneysupermarket.com.
But all the top accounts on the market at the moment use big bonuses to boost their headline rates, and savers looking for longer-term value need to be on their guard as a result.
“Savers should beware that the majority of easy access rates include a bonus, which providers use to lure consumers in,” Mountford said.
“At a time when consumers are being hit from every angle, including high inflation and a record low base rate, people should take advantage of bonus rates to buffer their savings.
“However, the benefits can soon be wiped out if you forget to switch once the bonus period has expired so make a note of the expiry date and be ready to switch again.”
If you are keen to switch to a new easy-access savings deal, the account topping the best buy tables at the moment is Coventry Building Society’s Online Poppy Saver, paying 3.10%. The rate, which includes a 12-month bonus of 1.10%, is available on balances above £1 and you can make deposits at any time. However, there are restrictions on the number of withdrawals you can make. Only four penalty-free withdrawals are allowed a year. You lose 50 days’ interest for each additional withdrawal you make.
Other competitive easy access accounts include Nationwide Building Society's MySave Online Plus account, which pays a headline rate of 3.05%, including a 12-month bonus of 1.51%, and can be opened with anything between £1,000 and £3 million (although bear in mind that only the first £85,000 is protected under the terms of the Financial Services Compensation Scheme or £170,000 for joint accounts).
It pays a headline rate of 3.05%, including a 12-month bonus of 1.51%, and can be opened with anything between £1,000 and £3 million (although bear in mind that only the first £85,000 is protected under the terms of the Financial Services Compensation Scheme or £170,000 for joint accounts).
The downsides are that you can only make one penalty-free withdrawal a year, and of course that once the first 12 months come to an end your rate will fall dramatically.
If you want unlimited access to your savings, then the best bet is the ING Direct Savings Account, currently paying 3.00%.
Its advantages also include that it can be opened with just £1 – good news for anyone hoping to build up a nest egg over the next 12 months.
But beware: The bonus included in the Coventry and Nationwide accounts' headline rates pales in comparison with the massive 2.46% bonus included in ING Direct’s 3.00% rate. Therefore, if you opt for the ING account it’s really important to move your money again after the first year.
What are the alternatives?
If you believe that inflation will continue to rise, one alternative to putting your cash into a fixed-rate bond or easy-access savings account is to invest in an Index-linked savings certificate from National Savings & Investments (NS&I).
The 48th Issue of this product is available now, paying the annual increase in the Retail Prices Index (RPI), currently 5.20%, plus 0.50% for five years.
You can invest between £100 and £15,000 and the returns are paid tax-free, but any withdrawals will mean losing the interest so you have to be happy to lock your cash away for the five-year term.
If, on the other hand, you think that the Base Rate is bound to start rising again soon, then you could opt for Lloyds TSB’s two-year tracker bond.
It can be opened with £2,000 and promises to track the Base Rate plus 2.80% for 24 months, giving a current pay rate of 3.30%.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.