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Fixed rate bond interest rates increase

10 August 2009 / by Andy Davies

Banks and building societies are increasing the interest rates on their fixed rate bonds in an attempt to attract savers Moneyfacts.co.uk has revealed.

According to the personal finance information provider, new competitive deals are being launched daily in a bid to bring in new savers.

In fact, in March this year, when the base rate fell to 0.50 per cent, there were three fixed rate bonds offering 4 per cent or above, compared to 104 fixed rate bonds today.

Figures published by Moneyfacts.co.uk show that five year fixed rate bonds offer the highest level of interest with an average rate of 4.38 per cent in August, which represents a 1.52 per cent increase since March this year.

While the average interest rate for a one year fixed rate bond increased by 0.37 per cent to 3.15 per cent in August.

Michelle Slade, spokesperson for Moneyfacts.co.uk, says many providers are using fixed rate bonds as a way to fund their lending activities.

She said: "Most fixed rate investments don't allow early access, as this guarantees the length of time the fund are available to the provider.

"There has been a marked rise in all types of fixed rate investments, including bonds, ISAs and escalator bonds. Escalator bonds work in the same way as traditional fixed rate bonds but the interest rates rises in steps, typically each year."

Ms Slade added that while the wide variety of fixed rate bonds is encouraging, savers need to make sure they select the product that will suit their needs.

She added: "Many bonds offer no access during the term, if a savers circumstances change and they need to access the funds, they may be unable to do so.

"While longer term deals may offer the most attractive rates now, when base rate increases these deals may become uncompetitive."

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