Before Christmas, it was still possible to get savings rates of up to five percent, by locking into a fixed rate bond.
Yet even though the Bank of England hiked base rates for the ninth time in a row in December, from three percent to 3.5 percent, banks and building societies have started pulling their best buy rates.
They reckon the pace of interest rate hikes will slow this year, as inflation eases and recession looms.
Challenger bank Ford Money now offers some of the most attractive fixed-rate bonds on the entire market.
It pays 4.15 percent fixed for one year on a minimum deposit of £500 and maximum £2million. Somebody who put £10,000 into this bond would earn £415 in a year, making it well worth the effort of switching from a zero-interest account.
Ford Money is really going for it, because it also tops the Moneyfacts best buy tables with its two-year fixed-rate bond paying 4.25 percent a year.
Its five-year fixed rate bond pays the highest interest of all. This currently beats every savings account in the UK by paying 4.40 percent a year.
This would turn a £10,000 deposit into £12,402 by maturity.
That’s a profit of more than £2,400. Finally, savers are getting a return worth having after years of near-zero returns.
Usually, longer term fixed-rate bonds pay notably higher rates than one, two and even three-year fixes.
Banks and building societies know they need to reward savers for locking their money up for such a lengthy period.
Yet the difference between Ford Money’s two-year fixed rate bond and five-year bond is minor – just 0.15 percent.
That’s because banks now assume that over the next five years, interest rates will fall below today’s levels.
Some analysts predict base rates will peak this summer and start falling by the end of the year.
With the UK set to be the only G7 country that will not grow this year, the BoE may be forced to cut interest rates to get the economy moving again.
Inevitably, that would have a knock-on effect on savings rates.
READ MORE: Top 10 regular savings accounts with high interest now
Savers now face a tough calculation. If they take out a one or two-year fixed-rate bond, it may reach maturity at a time when savings rates are much lower than today.
That means they won’t get such a good return on their next savings account.
Locking in for longer will only give them slightly more today, but could look a good decision in a couple of years’ time.
And it guarantees that they will get that 4.40 percent rate right through to 2027.
Savers who looked into last year’s best five-year fixed rate bond United Trust Bank, which paid 5.05 percent, will be feeling pleased with their decision.
That now looks like the peak for this cycle of savings rates.
On the other hand, nobody can say for sure where savings rates will go over a period as long as five years.
Yet the Bank of England’s monetary policy committee (MPC) is expected to hike base rates once again at its next meeting on Thursday, most likely to four percent.
Some savers will be tempted to wait to see if that triggers a flurry of new best buy rates.
It’s possible, but not guaranteed.
For those who have enough in their savings pot, probably the best strategy is to lock into a series of different fixed-rate bonds, over different terms.
This is playing the law of averages.
While it means you will never get the maximum possible return on your money, you won’t get the worst, either.