BondsApr 18 2017

Rates rise for fixed rate bonds

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Rates rise for fixed rate bonds

The long decline in fixed rate bond rates appears to be reversing with the first monthly increase since October 2015, according to Moneyfacts.

Moneyfact's research showed the average one-year bond increased by 0.03 per cent to 0.95 per cent, while the average long-term rate has risen by 0.04 per cent for the second month running to stand at 1.38 per cent, which is the highest rate seen since August 2016.

The increases were caused by 36 per cent of providers either increasing rates on their existing bonds in March or by launching new products.

There were no reductions that significantly impacted the market averages in the overall fixed rate bond market during March.

 Aug-16Jan-17Mar-17Apr-17
Average one-year fixed rate (excluding ISAs)1.12%0.90%0.92%0.95%
Average long-term fixed rate (excluding ISAs)1.56%1.25%1.34%1.38%
Source: Moneyfacts  

Rachel Springall, finance expert at Moneyfacts, noted the biggest high street banks were conspicuously absent from the providers raising rates.

"This proves that challenger banks and mutuals are making every attempt to improve the deals they have on offer in the hopes of securing deposits for a year or more, while the biggest banks don’t desire savers’ funds," she said.

Ms Springall noted statistics from the Office for National Statistics showed the UK household savings ratio fell to its lowest level since the 1960s.

Daniel Pilkington, independent financial adviser at Chattertons, noted from the Moneyfacts figures that NS&I is the best paying three-year bond despite it having a specific remit not to be the most competitive provider.

"If you look at the top paying accounts they feature sector specific challenger banks such as OakNorth and AgriBank, set up for entrepreneurs and farming respectively," he said. "I hope that this is a sign that genuine competition through genuine sectoral expertise is working."

david.rowley@ft.com