The Bank of England may have held interest rates at 3.75 per cent this week, but savers still have a rare opportunity to lock in inflation-beating returns in case rates do start to drift lower.
With inflation expected to hover at or just above 3 per cent for the rest of the year, according to the Bank, fixed-term savings accounts are increasingly attractive for households looking for certainty amid an uncertain outlook for borrowing costs.
For many savers, however, the bigger problem is not falling rates but inertia.
Millions of pounds remain parked in poor-paying current and easy-access accounts from major high street banks, some of which offer as little as 1 per cent interest or less. With inflation still running above that level, savers leaving money untouched in these accounts are effectively losing spending power in real terms.
By contrast, a growing number of fixed-rate bonds and cash ISAs continue to offer rates comfortably above inflation.
According to Moneyfacts, the top fixed-rate bonds available in June are paying close to 5 per cent. The best rates are largely being offered by challenger banks rather than the traditional high street names.
Fixed-rate savings accounts guarantee the interest rate for a set period — typically between one and five years — meaning savers are protected if the Bank of England begins cutting rates later this year. That certainty comes at a cost, however.
Most fixed-rate accounts do not allow withdrawals before maturity, or impose significant penalties for early access. Some providers deduct up to 180 days’ interest if money is withdrawn early, while others prohibit access altogether.
Best one-year deals
With balancing your finances for short and longer term in mind, here are the top fixed-term savings deals in June.
MBNA seems to lead the pack here, with a one-year bond paying 4.85 per cent.
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Afin Bank has a 4.8 per cent deal that has a minimum deposit of £1,000 and a maximum of £200,000.
Union Bank of India offers a one-year bond paying 4.76 per cent — there is also an 18 month offer that pays the same for those looking for a slightly longer term.
Best two-year deals
Among the market leaders is Recognise Bank, which runs an online two-year fix paying 4.7 per cent, with a minimum balance of £1,000.
Vanquis Bank offers a range of fixed-term savings products. Its fixed-rate bonds currently pay up to 4.30 per cent over two years, while fixed cash ISAs pay up to 4.25 per cent. Interest can be paid monthly or annually.
West Brom has a two-year deal paying 4.15 per cent but the conditions include that you can’t take money out during the term.
Beyond two years
Elsewhere, longer-term products are offering even stronger returns.
RCI Bank is currently offering a two-year fixed cash ISA paying 4.75 per cent, while Castle Trust Bank has a five-year fixed ISA paying 4.72 per cent. This is an online only account.
Atom Bank offers a three-year fixed at 4.75 per cent and a five-year deal at 4.85 per cent.
Beyond this length of time, you should think about whether investing might be right for your circumstances, as returns can be better than saving purely in cash over longer terms.
Receiving interest – and your tax position
Savers also need to think carefully about tax.
For those using a cash ISA, all interest earned is tax free and does not count towards the £20,000 annual ISA allowance.
Outside an ISA wrapper, interest is taxable once the term ends and the interest is paid. Basic-rate taxpayers can usually earn up to £1,000 in savings interest tax free under the Personal Savings Allowance, while higher-rate taxpayers receive a smaller allowance. Remember that tax is owed on interest in the year it is paid, not split across two or three years if that’s how long your fixed-term bond lasts.
Financial experts say that means savers should consider carefully how long they are willing to lock money away.
Those expecting rates to fall may prefer securing longer-term certainty now. Others may opt for shorter fixes in the hope that competition between banks keeps rates rising into 2027.