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‘Grab fixed savings deals now’ as interest rates will FALL say experts

Paloma Kubiak
Written By:
Paloma Kubiak

Savings rates have been on the rise in the last few months, but experts believe the market has reached its peak, as they urge people to grab fixed bonds now before they could slip back.

After years of paltry interest rates on savings accounts, savers are finally seeing more reasonable deals on the market.

In fact, fixed rate bonds have climbed to a decade high, with the current top payer offering 4.6% AER/gross on a one-year deal for those with £1,000 (Union Bank of India), according to Savings Champion data.

And this challenger has also climbed to the top of the two-year fixed bond table offering 5% AER/gross, just a month after the fixed rate market breached 5% in the five-year product category.

Elsewhere, savers can get 3.95% on a nine-month fixed rate savings account with digital challenger Atom Bank. For more best buys, see YourMoney.com’s Top paying savings accounts guide.

While this is all positive for savers and comes after eight consecutive Bank of England base rate hikes since December 2021, this could be as good as it gets – particularly for fixed rate bonds – according to savings experts.

Peak in the fixed term bond market

Anna Bowes, co-founder of Savings Champion says the fixed term bond market has definitely slowed over the last couple of weeks although there is still the occasional best buy that crops up.

“Normally, it will only be around for a short period presumably due to subscription limits. This slow down isn’t really a surprise and there are plenty of indications that the markets had over-egged the pudding and assumed that interest rates would rise to a higher level than they are likely to after all,” Bowes says.

She adds that the top one-year bond rate had been stuck at 4.6% for a couple of weeks although Oxbury Bank popped in a brief 4.65% last week.

“That said, although the latest 4.6% offerings from United Trust Bank and Vanquis have now been withdrawn, Union Bank of India is back at the top paying 4.6% – let’s see how long that lasts.

“As a result of this marked slowdown, we could now have seen the fixed term bond market peak – at least for the time being.”

Bowes said that while we are still expecting more base rate increases, “even that feels like the sentiment is changing and an end is in sight” which is “bad news for savers”.

Rates already priced in by the market

James Blower, founder of The Savings Guru explains that with fixed rate bonds and ISAs, providers have already priced in future rises in their current rates “so we are not going to see big increases from here”.

Meanwhile, longer-term swap rates and the expectation for where the base rate is going to peak, are both falling.

“The result of this is that current fixed rates are actually overpriced by comparison, which suggests we probably have peaked for the short term and there is a risk of falls.

“Last week was the first in months that the best buys didn’t increase on any fixed rate term and there’s definitely a chance that some of the best buy rates will actually fall this week,” Blower says.

He adds: “This means that it will only be competition that can drive rates up from here – that is, there can always be a bank that needs cash so will pay over the market rate to get it.”

But Blower says this is “highly speculative” so his message to savers is: “It may well be safe to grab fixed rates now or they could be disappointed. Certainly, we’ve seen savers waiting for 5% on one-year products and I think they will be disappointed.”

‘May be a prudent time to get money into a fixed term bond’

Indeed, for Rachel Springall, finance expert at Moneyfacts, savers would be wise to keep an eye out on savings rates over the next few weeks.

She reveals that since the start of last week, there have been a few challenger banks upping their rates “but very few reducing their rates.”

Springall says: “If savers are prepared to wait, we could stand to see shorter-term fixed bonds reach 5%, and it’s worth remembering just a month ago we had Atom Bank launch a 5% five-year fixed bond and today Vanquis Bank pay 5% on a two-year bond.”

However, she agrees with the other savings experts that top deals don’t stay around for long.

“Savers need to consciously decide how long they are prepared to lock away their funds as top rates don’t always stay on the shelf for long.”

Meanwhile, Bowes is a little harder on the urgency to bag a top deal. She says: “If you are looking for a new home for your cash and don’t need access, now could be a prudent time to get it into a best buy fixed term bond.”

What about variable or easy access accounts?

While the warnings come to savers looking to open fixed rate bonds, when it comes to variable savings rates such as those offered on easy access accounts, “it is a different position”.

Blower explains that with these, savers could actually see more rate rises.

“Banks can place surplus money with the Bank of England at base rate. Given that Virgin Money’s easy access ISA is the only account at base rate, and the base rate is expected to rise further again in December, we think there’s scope for easy access rates to go higher from here.

“While we’d say move now for the best rates anyway, we wouldn’t say stay put on easy access rates – so move if you’re earning less than 2.25% on easy access but keep alive to changes as rates are likely to get better.”

This is echoed by Bowes who says variable rate accounts should see some more improvements as further base rate rises occur.

But she adds that since the start of the year, the base rate has risen in total by 2.9% but reveals that few – if any – variable rate accounts have risen by that amount (excluding trackers which have no choice).

“So the key here is to see how your provider has treated you – and if you are not earning a competitive rate, switch.”