Long term savings accounts offer improved rates

14 May 2009

Savers might have to be willing to tie their money into long term deals in order to enjoy reasonable returns on their investments.

The latest figures from the Bank of England have revealed that instant access accounts are still suffering from low interest rates following the fall in the basic rate to 0.5 per cent.

According to the Bank, the average interest rate on instant access accounts was 0.15 per cent last month, down slightly on the March figure. In April 2008, the average rate of return was 2.42 per cent.

Average interest rates on tax-free Individual Savings Accounts (ISAs) slipped to 0.41 per cent in April compared with 0.63 per cent in the previous month. A year ago, ISAs were delivering an average rate of 4.81 per cent.

However, rates appear to be improving on longer term savings accounts.

Rachel Thrussell of Moneyfacts, the financial comparison service, said that, in recent weeks, interest rates on a number of four or five-year fixed-rate bonds had moved above 4 per cent.

At the beginning of April, only a couple of fixed-rate savings accounts paid out more than 4 per cent. Now more than 40 are doing so.

One reason for the sudden increase in high value fixed-rate accounts could be that banks and building societies are readying themselves for a return to the mortgage market and want to raise more capital to back the extra lending.

Andrew Haggar of Moneynet.co.uk said that fixed-rate accounts could become more competitive still as lenders start to offer a broader range of mortgage products again.