Fixed rate savings best buys vanishing fast
Andrew Hagger of Moneynet.co.uk looks at the latest developments in the fixed rate savings market.
Fixed rate savings has been by far the most competitive element of the savings market throughout 2009, however the rush by savers to bag a best buy rate shows no signs of easing as we approach 2010. As a result of this continued demand, Moneynet has witnessed many top deals being pulled in the last ten days.
The list of casualties include:
Post Office 3.70% 1 Year
Melton Mowbray Christmas Bond 4.00% 1 Year (only lasted 3 days)
Principality BS 4.25% 2 Years
Cahoot 4.20% 2 Years
Britannia 5.00% 3 Years
Co-operative Bank 5.00% 3 Years
Principality BS 5.10% 4 Years
Skipton BS 5.35% 5 years
Skipton BS 5.16% 5 Years (Lasted less than a week)
One of the main reasons for these bonds having such a short shelf life is down to people coming to the end of a very attractive deal from one or two years ago, trying to lock in to the very best rate they can find as a replacement.
Savers who fixed their interest rate 12 months ago could be coming off deals as high as 5.75% taken out with ICICI Bank UK and Anglo Irish Bank and many of those who locked in for two years in December 2007 will be waving goodbye to a six per cent plus rate or more, with the likes of Halifax paying as high as 6.45% back then.
Someone with a £20,000 balance will have received £1150 in interest (gross) on 5.75% from a year ago, whereas the best 1 year deal today with State Bank of India at 3.75% will net them £400 less at £750 before tax.
With a two year deal at 6.45% in 2007 your £20,000 would have earned you £2580 gross over the term where today's best two year deal at 4.25% will see your pre tax interest return fall to just £1,700 over two years.
The market is particularly competitive over the 1 and 2 year terms where there is no shortage of overseas and more niche players looking for a slice of the action.
Some providers are seemingly paying over the odds to attract money from savers especially on the four and five year fixed rate rates. If this is the case and base rate starts to climb at some time during 2010, the full benefit of any increase may not be passed on to savers as institutions may use it as an opportunity to regain some of their lost profit margin.