Last November, savers were able to get up to 5.10 percent a year from a market-leading five-year fixed-rate bond offered by Gatehouse Bank.
United Trust Bank was close behind paying 5.05 percent.
Savings providers have been steadily slashing rates since then, even though the Bank of England hiked base rates both in December and February.
Bank rate is now four percent and expected to climb again to 4.25 percent when the BoE’s monetary policy committee holds its next meeting on March 23.
Yet savings rates are now falling as providers anticipate inflation will soon retreat. By the end of the year, the BoE may be cutting base rates rather than hiking them.
Today’s market-leading five-year bond, from RCI Bank, pays a fixed rate of 4.25 percent a year, according to new research from comparison site Money.co.uk.
The average saver has £17,365 in various bank accounts, Money.co.uk calculates, and if they put all of that into RCI’s bond, they would get a handsome return.
RCI would turn it into £21,382 over five years. That would give savers an extra £4,107 on top of their initial deposit.
This shows how tucking money away in a long-term savings account can help it compound and grow. Although for long-term savings, the stock market should help it grow even faster.
A long-term investment in the FTSE All-Share would have turned £10,000 into £200,000.
Right now, a return of 4.25 percent is hardly mind-blowing, given that inflation stood at 10.1 percent in January.
It means the value of your deposit will be falling in real terms.
Yet this could soon change. By the end of the year, consumer price growth could have fallen to just two percent, analysts suggest.
If this forecast is correct, RCI’s fixed-rate bond may soon be paying more than double the inflation rate, making cash deposits grow in real terms.
By year end, savings rates on newly issued accounts may be much lower than today.
So locking into a five-year fixed rate could be worth considering, even if best buy rates were higher in November.
Andrew Hagger, savings expert at MoneyComms.co.uk, said nobody can predict future inflation and interest rate movements with any certainty.
“Your best move may be to split your money between different accounts over different terms.”
That may also suit savers who are unable to lock their money away for five years, as they will have no access to it in that time.
Money.co.uk picks out a range of market-leading savings accounts running over different terms.
For those wanting easy access to their cash, Ford Money Flexible Saver pays 2.65 per cent, which would return £460 on a £17,365 deposit over one year.
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Investec’s Notice Savings account pays 3.22 percent and this would give the same saver £559 in interest over 12 months.
Savers can get 3.60 percent from Paragon’s one-year fixed-rate cash Isa, worth £625 for somebody putting away £17,365.
Best buy rates outside of the tax-free Isa structure tend to be higher. For example, Paragon Bank’s one year fixed term bond, available exclusively on the Raisin savings platform, pays 4.20 percent.
This would be worth £729 a year on a £17,365 deposit.
Savings platform Raisin UK is offering a five-year fixed-rate bond paying 4.50 percent a year, beating even RCI Bank.
The bond is provided by Turkish bank İşbank but deposits up to £85,000 are still protected by the UK’s Financial Services Compensation Scheme (FSCS) in the usual way.
It would turn £17,365 into £21,640.
That would give the average saver a thumping £4,275 in total interest over the five-year term.
Again, if consumer prices fall as anticipated, savers with long-term fixed-rate bonds like this one may soon be getting an inflation-busting return, which is rare on a cash account.
Much now rests on what the BoE does next.
