Savers urged to '˜grab attractive deals' as low interest rates bite

Savers locking their money into longer-term accounts in the hope of being paid more interest are facing the worst rates on record, according to a financial website.
The savings market is looking bleak says the website MoneyfactsThe savings market is looking bleak says the website Moneyfacts
The savings market is looking bleak says the website Moneyfacts

The average rate on offer on a five-year fixed-rate savings bond has plunged to a “miserly” 2.28%, down from 2.50% a year ago and 2.56% in 2014, according to Moneyfacts.co.uk.

A similar trend has been found with five-year fixed-rate Isas. The average rate in this sector is now 1.98%, down from 2.20% a year ago and 2.59% two years ago.

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Moneyfacts said the current average rates on these deals are the worst it has seen, based on its records going back to 2008.

It said even longer-term deals in the “best buy” tables now offer returns of less than 3% - showing the need for savers to act quickly if they see a good deal.

A new personal savings allowance was introduced on April 6, taking most people out of paying any tax on their savings interest altogether.

Under the new allowance, basic rate taxpayers can earn up to £1,000 in interest without paying tax on it, and higher rate taxpayers can earn up to £500 in interest tax-free. Isas, which are already ring-fenced from the taxman, do not count towards the new personal savings allowance.

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In contrast to the savings deals, several current accounts now pay rates of 3%, 4% and 5%, with some accounts also offering perks such as cashback and cash to switch.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said the low long-term savings rates on offer are due to the low interest rate environment and a lack of appetite among providers for customers’ cash.

She said: “Providers that offer long-term bonds typically do so to fund longer-term lending, but thanks to Government borrowing initiatives their desire to attract savers has dissipated.