Savers may be pleased to hear that rates are improving on five-year fixed rate bonds. Furthermore, it may not necessarily be down to the Bank of England increasing the base rate for the first time in 10 years. In fact, the average five-year fixed bond rate rests at 1.98% today, which is 0.24% higher than it was a year ago.

Remarkably, providers have not had to work too hard to attract customers, as the smallest of tweaks have resulted in propelling them to higher positions in the Best Buy tables. Indeed, since the start of February, several changes in the market have resulted in market-leading deals.

Close Brothers Savings, Ikano Bank, Milestone Savings, PCF Bank, Secure Trust Bank and Vanquis Bank sit in the top six deals for a £10,000 investment today, and all of them have seen the rates improve since the start of February*.

Rachel Springall, Finance Expert at moneyfacts.co.uk, said:

“It is inevitable that savings providers who offer the most lucrative interest rates will be prepared to improve deals to secure their position within the Best Buys, by even the smallest fraction. This process gradually improves the best deals available, and so far they all come from the challenger banks.

We have seen some providers pricing in two rate rises to their five-year fixed bonds in the space of just a couple of weeks, such as Close Brothers Savings, Ikano Bank, PCF Bank and Vanquis Bank. This ongoing rate war has meant that the top six deals in this area of the market have all been repriced during February. This is great news for savers looking to invest over the longer-term right now – but is perhaps not such good news to savers who already locked-in earlier this month. Still, there is lots of room for improvement, considering the last time we had a five-year fixed bond paying 3% was in April 2016.

“Tomorrow, the Term Funding Scheme (TFS) closes, so it is hoped that savings providers will start to improve their offerings to entice new customers, to fund their lending. However, the window to lend out the cash from the last drawdown window is four years, so the market is unlikely to recover overnight.

“As interest rates are expected to improve, also due to a much-anticipated base rate rise, some savers may decide to hold off investing in a long-term fixed account. Savings providers may have to start working even harder to entice savers – otherwise they may need to assess their product range, depending on the customer demand.

“With the market expected to improve due to interest rate rises, we could start to see savers turn to shorter-term fixed rates. This could enable them to earn a decent rate, but also feel comfortable that they can access their money to reinvest in a Best Buy deal once the term is up, after maybe only a year. It’s uncertain what interest rates will be like in a years’ time, so savers will need to make a call on whether they want to risk investing in a five-year fixed bond or hold off for a little while longer.”

*Close Brothers Savings now pays 2.50% since 23 February, was paying 2.45% since 13 February, previously 2.40%.

Ikano Bank now pays 2.47% since 16 February, previously 2.38% from 2 February, previously 2.28%.

Milestone Savings now pays 2.45% since 23 February, previously 2.37%. Rate shown is the expected profit rate as Milestone Savings operates under Islamic finance principles.

PCF Bank now pays 2.47% since 20 February, was paying 2.40% from 14 February, previously 2.37%.

Secure Trust Bank now pays 2.46% since 9 February, was paying 2.43%.

Vanquis Bank 2.51% since 19 February, was paying 2.45% from 2 February, previously 2.40%.

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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