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Boost for longer-term savers

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Savers who are willing to keep their money in long-term savings accounts are benefiting from improved interest rates.

According to Moneyfacts, the financial information website, the returns provided by fixed-rate bonds have been on the increase since last summer.

Although that improvement needs to be set in context – the increases have been from a historic low of just 2.25 per cent – it appears to have been prompted by speculation that the Bank of England will be looking to raise official interest rates later this year.

Moneyfacts reported that the average interest rate for a one-year fixed-rate bond is now 2.85 per cent, a high water mark not seen since March 2010.

Two-year bonds hold out the promise of an average 3.42 per cent return. Locking in money for three years rewards savers with an average interest rate of 3.7 per cent, while committing to four years produces an average rate of 4.17 per cent.

Michelle Slade of Moneyfacts said: “The biggest increase in rates is on short-term deals, which are the most popular amongst savers.

“Most of the best deals are from smaller building societies. If savers want to make the most of their money they may need to look further afield than their local High Street.

“The markets expect a rise in Bank base rate in the not too distant future and this is being factored in to the rates being offered to savers.”

But Ms Slade advised that people would come face to face with a sizeable penalty charge if they decided they wanted access to their money during the fixed-rate term, and should, therefore, consider carefully whether or not they could afford to tie their savings up for a lengthy period.