Savers with maturing five-year accounts are in for a nasty shock, as rates have plummeted even for those willing to lock away their money for longer periods, figures show.
Financial firm Moneyfacts said the average rate available on a five-year fixed-rate bond had fallen to just 1.65%, down from 2.65% a year ago and less than half of the 4.04% being paid in October 2011 when such savers would’ve opened their now-maturing accounts.
The highest rate available to savers taking out a five-year bond has also fallen steeply. While five years ago savers who shopped around could earn as much as 4.92% on their cash, the best-paying account now offers 2.01%. Even in October 2015 a rate of 3.35% was available.
Savers have been hit by the falling base rate and a reduction of competition in the marketplace, Moneyfacts said. Recently it found that across the market, the number of savings accounts available to customers had dropped to its lowest level since 2007.
There have been more than 100 cuts to five-year fixed-rate savings bonds since January, the firm said, and the number of accounts available has fallen.
Charlotte Nelson from Moneyfacts said: “Customers seeking such deals are now facing not only lower rates, but poor choice as well. Five years ago, savers would have been able to get a rate close to 5%. Those savers who opted for a fixed rate back then will be severely shocked to find scarce choice today, as there are only two deals offering 2% or more over a five-year fixed term.”
She added that providers “simply do not want to be caught out by paying higher rates than may be necessary in the future”, and that savers should be wary about locking their funds away for any significant amount of time.
“However, the fact still remains that long-term fixed rates offer savers some of the relatively better rates,” she said.
The current best five-year fixed rate, a 2.01% deal from Secure Trust, can be opened with a deposit of £1,000. It is followed by a 1.95% account from Vanquis with the same minimum balance.
Anna Bowes of website SavingsChampion said the number of accounts available had started to fall even before the Bank of England cut the base rate to 0.25% in August, and that there were no high-street names among the best-paying providers. “They are all accounts from providers savers may not have heard of, but they are all covered by the Financial Services Compensation Scheme, so you don’t need to worry about putting your money in them.”
Bowes said that rates in the Isa market were even worse, with the best five-year deal paying 1.45%.
However, five-year rates remained the best outside high-paying current accounts, she said. “If you think rates may go up and you have enough money you could put some in a five-year deal and some in a shorter-term account - that way if rates go up you can move that money, but if they go down you will still have some locked away.”
