Short-term savings deals hit an all-time low of just 0.61%

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Returns on one-year fixed-rate bonds have never been lower


Rates on savings bonds halve in a year: Savers now get an all-time low of just 0.61% interest on the average one-year deal

  • One-year fixed-rate deals paid 1.28% on average this time last year 
  • But they now pay less than half that and the best rate available pays just 1.08% 
  • Savings rates have been hit by NS&I’s cuts to its best buy rates, with banks no longer having to pay attractive rates to entice savers into opening accounts 

While it’s been an annus horribilis in many more important respects, savings rates have not escaped the consequences. 

Just a year ago, British savers could improve the returns on their deposits by locking away their cash for a year with a fixed-rate account or bond paying an average of nearly 1.3 per cent in interest.

Now that figure has dropped to an all-time low of 0.61 per cent, according to Moneyfacts, down from 0.63 per cent in August.

The best rate available on the market to savers has fallen from 1.2 per cent at the start of September this year to 1.08 per cent now. That might be a difference of just £12 a year on £1,000 of savings.

Returns on one-year fixed-rate bonds have never been lower

Tax-free fixed-rate deals have also been hit over the last few months, with the average tax-free Isa paying 1.21 per cent last November and just 0.58 per cent now, although there has been a smaller fall in the best available rate between the start of September and today.

However, savers have largely shunned these accounts this year and have preferred to keep cash close to hand.

The amount of money held in fixed-term deals fell by £8.4billion between March and September, according to the Bank of England, while savers instead poured £48.3billion into easy-access accounts.

Savings rates have been reversing for the last few months after National Savings & Investments announced drastic cuts across a range of popular accounts.

Cuts to best buy rates announced by the Treasury-backed bank in September, which will come into force next Tuesday, effectively pulled the rug out from underneath a savings market which was slowly recovering after record falls in savings rates.

Its best buy easy-access deals paying as much as 1.15 per cent monthly interest and 0.9 per cent on tax-free savings had forced banks needing to raise money from savers to increase their rates, with This is Money reporting a revival in short-term fixed-rate bonds and easy-access deals in July and August.

One-year fixed-rate bonds hit an all-time low 
Month Average one-year fixed-rate bond 
November 2019 1.28% 
August 2020 0.63% 
October 2020 0.68% 
November 20200.61%
Source: Moneyfacts 

But NS&I’s accounts had distorted the market, which meant that when it said it would cut rates after savers poured £38.3billion into it between April and September, savings banks were quick to follow suit with rate cuts of their own.

Some 160 savings accounts were cut or disappeared from sale by the end of October following the announcement, with rates across all accounts slumping. The best easy-access deal now pays just 0.75 per cent, down 0.4 percentage points on two months ago.

The likes of Kent Reliance, Ford Money, Gatehouse Bank, Zopa, Oaknorth and United Trust Bank have all cut fixed-rate bonds and Isas or removed them from sale in the last few days alone.  

How have savings rates changed since NS&I cut its rates?
 1 September  21 September 28 September 1 October 14 October29 October
Easy-access top rate 1.15% 1.2% 1.1% 1.05% 0.96% 0.8% 
Easy-access top five average rate 0.91%1.08% 1% 0.9% 0.87% 0.76% 
One-year fixed-rate top rate 1.2% 1.3% 1.21% 1.18% 1.18% 0.95% 
One-year fixed-rate top five average rate1.14% 1.24% 1.18% 1.16% 1.06% 0.93% 
Easy-access Isa top rate 0.9% 0.96%1% 1% 0.96% 0.95% 
Easy-access Isa top five average rate0.78% 0.92% 0.97% 0.92% 0.85% 0.76% 
One-year fixed-rate Isa top rate 0.85% 1.02% 0.93% 0.92% 0.82% 0.8% 
One-year fixed-rate Isa top five average rate 0.77% 0.96% 0.91% 0.87% 0.79% 0.74% 
Source: Savings Champion 

Moneyfacts’ Rachel Springall said of the figures: ‘One of the most ignited areas in the savings market was one-year fixed rate bonds, which saw average rates rise for two consecutive months after the record low seen in August. However, the average return has since fallen to a new low of 0.61 per cent, fuelled by numerous top deals experiencing cuts.’

She added: ‘Market volatility may now force the hand of savers to review rates on a more frequent basis, rather than a month-by-month check, as rates are changing much more frequently.

‘This may also pose a challenge for savings providers who are attempting to retain a competitive offering, but perhaps are inundated by demand for the top rates and must then change their deal fast. Therefore, keeping on top of the trends in the market will be essential at such a crucial time for providers and savers alike.’

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