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Fixed rate savings climb to decade high while ISAs hit nine-year peak

Paloma Kubiak
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Paloma Kubiak

Average fixed bond rates have reached their highest levels since 2012, with savers seeing rises across variable products and ISAs for the past seven months.

The average one-year fixed rate bond stands at 2.29%, its highest level since November 2012, up from 1.97% just last month and 0.65% in September 2020, according to Moneyfacts data.

It said the one-year fixed bond arena “remains extremely competitive” with the average return breaching 2% for the first time since December 2012 (2.11%).

Meanwhile, the average one-year fixed rate ISA has nearly quadrupled in two years – up from 0.58% in September 2020 to 1.96% now. This is the highest level since January 2013 when the rate stood at 2.18%.

Average easy access rates have also risen at speed, climbing from an average 0.22% two years ago to 0.84% in September 2022. Moneyfacts said this is the highest point in a decade (0.87% in December 2012).

Elsewhere, Moneyfacts data revealed product choice for savers has also increased for the seventh consecutive month to 1,754 savings deals (including ISAs).

This is the highest count since March 2020 when there were 1,768 products, “far beyond the record low count of 1,340 in April 2021”, it noted.

‘Notable competition’

Rachel Springall, finance expert at Moneyfacts, said: “The average one-year fixed bond market was heated during August, as we saw the average rate rise by 0.32% month on month – the highest monthly improvement since our records began.

“Those savers looking to invest for longer would also see rate rises on longer-term fixed bonds, and due to the volatility of rate changes, the average shelf life for a fixed bond fell drastically to 27 days, down from 40 days a month prior. Providers are moving quickly in response to competition, so savers can now find the top short-term fixed bonds paying rates beyond 3%.

“The back-to-back base rate rises have had a positive influence on variable savings rates, and this, along with notable competition, has seen the average easy access rate rise to its highest level since 2012. The recovering momentum of this arena has seen the average rate rise from 0.17% to 0.84%, standing around five times more than last year.”

However, Springall said that not every account has improved over this period, “so it’s vital savers compare their existing accounts and switch to take advantage of the current competition”.

She also said that while ISA rates are improving, “there remains a notable rate gap between fixed bonds and ISAs, so savers will need to weigh up any tax-free allowance they have before they commit”.

ISA outflows gather pace

According to the Bank of England, cash ISA outflows continued in July, rising to £647m, from £210m a month earlier.

As interest rates continue to rise, savers with large pots may breach their Personal Savings Allowance, “so we could see net outflows change”, Springall said.

She added: “However, the cost-of-living crisis may well lead to savers withdrawing cash to cover costs.

“The attitude among savers may be volatile in the months to come, both for those chasing down fixed rates and those who can withdraw their savings to cover rising living costs. To attract savers, providers will need to respond quickly to compete with their peers and offer a range of products to suit specific needs.”