The long wait’s over for savers as rates hit 5pc

SAVERS locking their money away for one year now can bag the best rates in more than 14 years.

Fixed-rate bonds have had yet another boost as interest rates continue to rise, with one-year deals breaching 5 pc.

In recent months, savers have faced a dilemma over whether to fix or wait for better rates to come along. Those who waited have been rewarded.

Last week, Shawbrook Bank trumped others by raising its one-year rate to 5.06pc. It followed a swathe of banks edging their fixed rates up to 5 pc.

Close Brothers, Zopa Bank and United Trust Bank now pay 5.01pc on their one-year bonds while Atom, Investec, Hampshire Trust Bank and Isbank, via savings platform Raisin, all offer 5 pc.

Savers taking out bonds today can get more than double the top rate on offer 12 months ago — 2.4 pc. These are the best returns offered to savers in more than 14 years, according to rate monitor MoneyfactsCompare.

Fixed-rate bonds rocketed after figures released last week showed inflation has remained higher than expected. Banks price their fixed deals according to what they think will happen to rates over the next years.

They don’t want, for example, to be paying savers 5 pc interest in four years’ time if interest rates have dropped to 2pc. Last week’s inflation figures show that repeated rate hikes from the Bank of England have failed to quell price rises. Consumer prices increased by 8.7pc in the 12 months to April, down from 10.1pc in March. However, financial markets had expected inflation to fall further to 8.2 pc.

Markets expect the base rate to rise by more than previously anticipated to 5.5 pc, with the next hike expected as early as next month. In response, twoyear fixes have also breached the 5pc mark, with Close Brothers at 5.2pc and DF Capital at 5.16pc. Some five-year bonds now offer over 5pc, including Zopa (5.05 pc) and United Trust Bank (5.02pc) in a sign the banks expect interest rates to remain high.

Anna Bowes, of advice website Savings Champion, says savers now have a unique chance of securing an above-inflation deal. She says: ‘With rates as high as they are, if price rises slow down quickly you could find yourself with a bond that is paying close to or even more than inflation for some or much of the term.’

Experts warn that by waiting for even higher deals, you risk missing out. Emma Wall, of Hargreaves Lansdown, says: ‘We’ve seen a great deal of repricing and some really attractive fixed rates — especially in the one-year market.’ But she adds: ‘If you wait for better deals you are taking a risk. If the market is over-reacting, we may not see rates go much higher in the coming months.’ Before buying a fixed-rate bond, make sure that you are happy to tie your money up and won’t need it during the term, says Ms Bowes. Top-paying bonds don’t let you take money out. And those that do will charge you a penalty for doing so. The charge is typically equal to 90 days interest on a one-year bond but can rise to a year’s interest on a five-year bond.All the banks mentioned are covered by the Financial Services Compensation Scheme, so if one runs into trouble, investors will get back up to £85,000 or £170,000 on joint accounts.