Higher rates are disappearing – should you fix your savings?

The savings market has continued to cool in recent months after a base rate cut in August, followed by a drop in the rate of inflation in September.

Against this backdrop, it could make sense to fix your savings before interest rates fall further, if you want to take advantage of the best savings rates currently on the market.

The average rates on one-year and longer-term fixed bonds and ISAs have now dropped to their lowest levels in over a year, according to financial information company Moneyfacts.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

On average, savers can now earn 4.31% from a one-year fixed-rate bond. Meanwhile, they can earn an average of 3.93% from a longer-term bond. These are the lowest rates since June 2023 and March 2023 respectively.

The level of income available through an equivalent ISA product is slightly lower, at 4.18% and 3.88% respectively.

The window of opportunity to lock in higher rates looks like it is rapidly closing – and savers will need to act quickly if they want to get ahead of the next Bank of England meeting on 7 November.

“Fixed bond rates have now fallen for a third consecutive month and more drops could well be on the way due to expectations that the Bank of England will cut the base rate before the year ends,” says Rachel Springall, finance expert at Moneyfacts.

When will interest rates fall further?

The Bank of England cut interest rates on 1 August for the first time in over four years, bringing them down from 5.25% to 5%. The base rate is expected to fall further before the end of the year.

Inflation came in lower than expected in September, slowing to 1.7%. As a result, another rate cut is pretty much baked into market expectations ahead of the next Monetary Policy Committee (MPC) meeting on 7 November.

Some commentators and investors expect a back-to-back cut to follow at the MPC’s final meeting of the year on 19 December, with rates then falling further over the course of 2025.

According to experts at ING, the base rate could tumble to 3.25% by next summer.

Shifting rate expectations have already had a significant impact on the savings market – and the level of income you can earn on cash savings should continue to fall as further base rate cuts materialise.

Commenting on the latest developments, Mark Hicks, head of active savings at Hargreaves Lansdown, says: “A 5% rate is [now] vanishingly rare in the 1-year market, and the best deals over two years or longer are now closer to 4.5%.”

The good thing about opting for a fixed-rate account is that it gives you the opportunity to lock in a guaranteed level of income for an agreed period of time. Meanwhile, the variable rate on an easy-access account can drop with little or no notice as the macroeconomic backdrop shifts.

“It means you need to weigh up whether you actually need your savings close to hand,” Hicks explains.

“You should have easy-access savings to cover 3-6 months’ worth of essential spending while you’re working age and 1-3 years’ worth in retirement. But for any cash you’re holding beyond this, it’s worth considering tying it up in accounts or cash ISAs for the periods that make the most sense for your finances,” he adds.

How to find the best fixed-rate savings deals

Loyalty rarely pays when it comes to savings providers, so make sure you shop around to secure the best rates. Comparison sites can be helpful and you may find that challenger banks offer better deals than some of the high street giants.

Before opening an account, always check that it is covered by the Financial Services Compensation Scheme. The challenger banks covered under this scheme enjoy the same £85,000 protection as high street names.

See our round-up of the best one-year fixed savings accounts and cash ISAs for the latest deals.