Fixed Interest Rate Bond Providers Do Battle For Maturing Funds

By: MoneyFacts

Bank base rate has been on hold for the last 20 months and in that time the average one year fixed rate bond rate has varied by 0.71%.

November 2009 saw National Savings and Investments topping best buy tables and large volumes of savers rushed to take advantage of top rates from a provider offering 100% protection.

During this time, rates reached a peak of 3.23% and now the battle is on to attract the maturing monies from these accounts.

In the last three months, the number of one year bonds paying 3.00% or above has increased from three to 17.

Michelle Slade, spokesperson for Moneyfacts.co.uk, commented:

“Providers are relying more heavily on in house sources of funding, such as savings balances, rather than entering the money markets to fund their lending activities.

“Competition was rife in the one year bond market in November 2009 and now providers are upping their rates in order to take advantage of the large volumes of maturing monies that are re-entering the market.

“Savings providers are prepared to pay a premium in order to attract new money.

“Going forward, the wide margin between base rate and savings rates may become unsustainable for providers.

“Once base rate does start to increase, providers may opt to only pass on part of the increase to savers in attempts to reduce this margin.

“In the current low rate environment, the most competitive bond rates tend to only last for short periods.

“Savers should act fast or they may lose out.”

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