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One-year bond rates rising at ‘astounding pace’

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One-year fixed rate bonds are three times higher today than they were just last year.

The average one-year fixed bond rate recorded its biggest ever month-on-month rise and stands at 1.53%, according to data site Moneyfacts.

Based on its records, which date back to February 2007, average one-year bond rates increased by 0.29% in the month to 1.53%. This is the highest level since October 2013.

Just this time last year, average rates stood at 0.48%.

Challenger banks are taking the lead in the fixed bond market, making consecutive changes to their range during May. But Moneyfacts said this “vigorous competition” led to a fall in the average fixed rate bond shelf life to 44 days, the lowest recorded since November 2021 (40 days).

On long-term fixed rate bonds, Moneyfacts revealed these had risen by 0.29% to 1.97%, the biggest increase since July 2008. It takes the rate to its highest level since February 2016.

However, while longer-term fixed bonds also recovered, the margin between the average one-year and longer-term bond stands at 0.44% so savers may not be comfortable locking their money over a longer period.

Meanwhile, the average one-year fixed ISA now stands at 1.21%, its highest point since November 2019. They have also seen the biggest month-on-month rise seen since August 2011.

Turning to average easy access savings rates, these have risen to 0.46% which is the highest level in two years.

And as interest rates are rising, Moneyfacts said product choice overall has also grown by 256 deals year-on-year. There are now 1,711 savings deals, including ISAs, which is the highest count in choice since March 2020, and way above the record low count of 1,340 in April 2020.

‘Challenger banks jostling for table-topping positions’

Rachel Springall, finance expert at Moneyfacts, said: “Fixed rates are rising at an astounding pace and month-on-month we have seen the average one-year fixed bond rate see its biggest monthly rise of 0.29%, breaching its previous record-rise from over ten years ago (0.27% in July 2008).

“The back-to-back Bank of England base rate rises are also making an impact on variable savings rates, but it is the challenger banks and building societies jostling for table-topping positions. The average easy access rate and notice rate stand at their highest levels since April 2020, with notice accounts experiencing their biggest month-on-month rise since August 2007. Easy access accounts are still well-sought after and, according to the Bank of England, during April there was an inflow into sight deposits of just over £2.2bn, which is £15bn so far this year. However, for time deposits there was an inflow of around £868m.

“At a time of notable interest rate rises, and further murmurs of base rate rises to come, savers could find a notice account an appealing choice as they can get a slightly higher return than on an easy access account (the margin between the average easy access and notice rate stands at 0.48%) but avoid locking their cash away as they would with a traditional fixed bond. Due to the volumes of rate re-repricing seen in May, consumers and savings providers alike would be wise to keep a close eye on market movements in the weeks to come as rises could continue to dominate.”

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