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Interest plummets on fixed rate cash savings deals

Interest plummets on fixed rate cash savings deals
Paloma Kubiak
Written By:
Paloma Kubiak

December recorded the largest month-on-month fall in average fixed savings rates in over a decade, while January saw providers continue to slash offerings for savers.

The average one-year fixed rate bond offered 4.62% as at 1 February 2024 – a “significant” 0.82% down from its first-of-month peak at 5.44% in October 2023.

According to data site Moneyfactscompare, the average one-year fixed ISA stood at 4.51%, down 0.76% from its 5.27% high in October.

It said that, since these highs just a few months ago, bond and ISA rates have reduced drastically, with some average rates falling more than one percentage point in the period.

Longer-term fixed rates are also suffering, with the average four-year fixed bond standing at 3.96% on 1 February. This is down 1.04% from the 5% offered on 1 October.

Meanwhile, the average two-year fixed ISA stood at 4.22%, which is 1.01% down from 1 October’s high of 5.23%.

Variable savings rates hold steady

Fixed rate savings deals may be plummeting, but Moneyfacts revealed variable savings rates have held firm.

The average interest paid on an easy access account stands at 3.17% – down just 0.02% from the 3.19% peak in November. Notice accounts have fallen slightly more – from a peak of 4.44% on 1 December to 4.30% now. But Moneyfacts said that drop of 0.14% “remains very modest in comparison with fixed rate reductions”.

Turning to variable rate ISAs, there is also a minor reduction in the average rate. The average easy access ISA rate actually rose in January from 3.25% to 3.30%, while overall it is just 0.01% down on the first-of-month 2023 peak of 3.31% in December.

Moneyfacts explained that variable rates are heavily influenced by interest rates, and with the Bank of England (BoE) base rate remaining at 5.25%, it means savings deals have also remained fairly steady.

These products are also more reactive than fixed rates, which means they can be changed within a much shorter time frame, so providers don’t need to commit to a specific rate over a particular time period.

Shop around and switch

James Hyde, spokesperson at Moneyfacts, said: “Average fixed savings rates fell in the autumn for the first time in a couple of years, with swinging reductions continuing in the following months. Meanwhile, the average easy access rate has barely shifted at all since peaking in November.

“On 1 October 2023, the average one-year fixed bond paid 2.27% more than the average easy access account – in just four months, the gap has narrowed to just 1.45%.

“Even among the best-paying accounts, on 1 October the most lucrative one-year fixed bond paid 1% more than the market-leading easy access account, whereas now the top-paying easy access account pays 0.04% more than the best one-year fixed deal.

“It remains as essential as ever that savers shop around and switch to get the best possible return on their hard-earned cash.”