Fixed-rate saving deals begin to disappear
Fixed rate bonds have been hit the hardest by the Bank of England's shock announcement last week of a 0.5% drop in interest rates to 4.5%.
Anxious providers have been pulling their fixed-rate deals and replacing them with lower-paying offers for fear they will be trapped with the cost of paying headline rates to savers in fixed-rate bonds while base rate plummets.
The withdrawals come at a time when experts predict base rate could fall as low as 2% next year, despite the increasing threat of inflation.
The best-buy tables were full of one-year fixed-rate deals topping 7% earlier this year, but these have now been reduced to only two: Anglo-Irish Bank and Indian bank ICICI. However we have removed ICICI and Nigerian bank FBN from our savings tables due to their high risk ratings from credit ratings agencies.
Therefore Anglo-Irish is the best one- and two-year deal on the market at 7.05% and 7% respectively. Bradford & Bingley is a close second in the one- and two-year market at 6.7% and 6.75% respectively, while it holds the mantle of best provider in the three year market with an impressive 6.75% rate.
Britannia Building Society was among the providers to reduce its one-year bond this week and replace it by a lower-paying version: the new bond’s rate at 5.6% is 0.65% lower than its predecessor’s. Chelsea BS withdrew its Autumn Fixed Rate bond and replaced it with another paying 0.2% less.
Leeds, West Bromwich and Cheshire building societies carried out similar actions on their longer-term bonds, as have Clydesdale and Yorkshire banks. Barclays has lowered the rate on its nine-month bond by 0.3% on balances under £40,000.
Michelle Slade, savings analyst with price comparison website Moneyfacts.co.uk, said: ‘It is fixed rate bonds which have seen the biggest impact, with numerous providers withdrawing their products and launching new ones paying reduced rates. Many providers are also offering reduced terms, a move which shows they are worried about short term funding as opposed to long term.
‘Savers should get in quick to take advantage of these rates as it is unlikely they will be around for long.’
The only provider to buck the trend to date is Capital One Savings, which increased the rate on its fixed-rate bonds by up to 0.5% across the board. Its one year bond is still well behind the market leaders however at 6.5%.