Savers in a fix as rates start to drop

Fixed rate bonds are a popular way for consumers to generate a better return on their savings compared to the equivalent easy access savings account. However, moneysupermarket.com reveals that rates have recently dropped across the leading accounts, dealing another blow to the UK's already beleaguered savers.

With the exception of four year fixed rate bonds, the average rates for leading products have dropped significantly over the past couple of weeks, with one and two years bonds dropping by 0.06 and 0.12 per cent respectively.

A longer term look at the bond market reveals that interest rates spiked in July, following the introduction of several market leading products, but is now falling again as lenders begin to reduce their rates.

Kevin Mountford, head of banking at moneysupermarket.com, said; "Although consumers have not had access to rates as high as were paid three or four years ago, fixed rate bonds still represent a great option for savers prepared to lock away their cash. Over the last few of months, we have seen the likes of Bank of Baroda introduce market-leading fixed rate savings products to attract customers in the online space. The launch boosted competition in the market and other providers increased their rates as a result. However, having attracted large inflows of money we are now starting to see rates drop back as providers actively manage their funding requirements.

"In this low rate, high inflation environment, where consumers desperately need to make the most of their savings pots, it's more important than ever that savers do everything in their power to generate extra value by earning the highest return possible. Fixed rate bonds still represent a good option and although rates have been falling, the market remains healthy. We are still seeing new products being launched. For example, the Rothschild Reserve Fixed Rate Deposit, launched today, offers a competitive 4.60 per cent for savers happy to lock their money away for five years.

"Despite the recent drop in rates, bonds will continue to dominate the savings market for some time to come and we would urge anyone looking to lock their money away to do so now before rates drop further."