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Long-term fixed savings rates drop to levels last seen before 2017 base rate rise

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Written by: Emma Lunn
18/11/2019
The interest rates paid on fixed rate bonds have plummeted despite two base rate rises in the past two years.

Longer-term fixed savings rates have plummeted to levels not seen since the Bank of England base rate rose in November 2017, according to Moneyfacts UK Savings Trends Treasury Report.

The research found that the average longer-term fixed bond rate (1.54 per cent) fell to its lowest point since July 2017 (when it stood at 1.49 per cent) and the average longer-term fixed ISA rate (1.35 per cent) fell to its lowest point since October 2017 (when it stood at 1.32 per cent).

Meanwhile, the average one-year fixed bond rate (1.28 per cent) is at its lowest level since June 2018 (when it also stood at 1.28 per cent), and the average one-year fixed ISA rate (1.21 per cent) is at its lowest level since May 2018 (when it stood at 1.19 per cent).

Rachel Springall, finance expert at Moneyfacts, said: “It will be disappointing news for savers to find the positive impact of both competition among challenger banks and two base rate rises over the past two years has unravelled in such a short space of time. Indeed, this year both the longer-term fixed bond and ISA average rates hit their highest peak since the 2017 base rate rise.

“In March 2019, the longer-term fixed bond rate hit 1.89 per cent, and the average longer-term fixed ISA rate had reached 1.62 per cent, meaning they have dropped by 0.35 per cent and 0.27 per cent respectively over the past eight months.”

Moneyfacts blamed the rate cut on savings providers not wanting to risk paying out an inflated rate to consumers if they feel interest rates are expected to fall over the next few years.

On the opposite side, savers may not want to invest in a longer-term fixed bond or ISA, and are instead opting to keep their cash close to hand. Pensioners may also be using easy access accounts instead of fixed while they decide what to do with their pension freedoms cash.

“The economic uncertainties could well be the cause as to why the amount invested within interest-bearing sight deposits more than doubled in September year-on-year, one month before the UK was due to depart the EU. In comparison, money continued to flow out of interest-bearing time deposits in September 2019, according to Bank of England statistics,” said Springall. “Savers are also still playing it safe by placing their cash within the high street banks, even though they do not pay the best interest rates on the market. The biggest banks are more robust than during the financial crash as they have had to amass more capital reserves.”

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