Savers likely to be caught out by a maturing fixed rate bond

Business banking news review: week ending 10 Jan 2013

Financial experts warned this week that anyone with a maturing fixed rate bond will most likely be caught out when it comes to re-investment.

Banks and building societies have lowered the interest rates on their fixed rate offerings over the last few months, leaving anyone with an older loan reaching maturation with some rather poor choices when it comes to re-investing their hard-earned cash. Anyone with an existing three-year fix will be quite badly off, as the top earner three years ago, a 4.5 per cent pre-tax interest rate, is now replaced with a 2.8 per cent three year fix – a major reduction in return.

This 2.8 per cent offering from Virgin Money s, sadly, the best of a lacklustre bunch. Other providers such as Tesco and M&S Money are offering pre-tax rates of 2.5 per cent, and you’ll be lucky to get a 2.6 per cent three year fix from AA Savings – provided you have at least £25,000 to invest.

One year fixes are down on average from last year’s rates as well, with top deals from Tesco, Metro Bank, and Virgin Money coming in at 2.2 per cent, 2.25 per cent, and 2.4 per cent respectively all lagging well behind the 3.6 per cent deals available in January of 2012. Closest you can get is the 2.75 per cent rate on BM Savings’ newest one-year deal, though you’ll need £50,000 or more to qualify for such a ‘great’ interest rate, so good luck there.

Two year fixed rate savings accounts are down from their 2011 levels as well, though there are no surprises here considering the state of the bond market either. Lucky savers could have earned as much as 3.65 per cent before taxes if they snagged a top-paying deal two years ago, but now they’d be hard pressed to find anything higher than 2.65 per cent on a new two year fix – and that’s only available through one lender, Saga, and only if you’ve got at least £25,000 to invest.

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