Fixed rate bond savers set for a big fall

Just 12 months ago savers had their pick of one year fixed rate bond products offering around seven per cent AER. But for those that invested in one of these deals a new reality awaits, with many rates dropping off significantly when the account reaches maturity.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Until now some savers will have been somewhat sheltered from the low rate environment, with their cash locked away generating excellent returns. But these savers are about to come down with a bump; some will find the interest paid on their savings has dropped by as much as 7.9 per cent.

"It will be interesting to see whether or not these savers look to riskier investments, such as equities backed vehicles, in order to maintain returns. Those that choose to stick with the fixed rate bonds market will find some solace in several two year fixed rate deals offering over four per cent - still low compared to the highs of last summer, but probably much higher than AER after maturity.

"The golden rule for anyone coming to the end of their fixed rate bond deal is to pay attention to the rate they are getting, and switch to a new deal as soon as the interest rate drops off. If they allow their cash to languish in low interest paying accounts it could cost them hundreds of pounds in lost interest every year."