Savers who are enjoying the security of a fixed rate bond should not rest on their fixed rates but should ensure they switch to another competitive deal when it reaches maturity, moneysupermarket.com has urged.
While fixed rate bonds offer savers an opportunity to generate a competitive return on their lump sum, especially in the current savings market, savers should beware of lenders shifting their money into a standard savings account when the bond's fixed rate period ends.
Savers could lose as much as £1,000 a year if they are not on the ball when their fixed rate bond deal ends and fail to shop around for another competitive rate.
Savers who took out a Capital One five year fixed rate bond in 2004, for example, would see the interest rate on their savings plummet 5.1 per cent at maturity, equating to £765 a year less in returns on a £15,000 deposit.
Even those who took out a one year fixed rate bond from Firstsave this time last year would see a drastic fall in interest of six per cent, earning them £953 less on £15,000 of savings.
Kevin Mountford, head of banking at moneysupermarket.com, said that fixed rate bonds offer savers excellent rates of return if they are willing to lock away large cash deposits for a certain period of time, but warns that if they take their eye off the ball they could lose out significantly.
But, this is not always the case, he added, as "there is inconsistency amongst providers," and some savers will have fared well by leaving their savings with the same provider.
For example, Mr Mountford said, "savers that invested in a three year fixed deposit account at 5.6 per cent AER from United Trust Bank in 2006 would actually fare quite well now - as their money would be shifted to another fixed rate account, exclusive to existing customers, offering a very competitive four per cent when their bond matures."
"The clear message for consumers is to understand the terms and conditions of their fixed rate bond and be aware that when their rate expires, as they may need to move their money to avoid a poor rate of interest. Savers should be wary of locking away their money for any longer than a year or two, but there are some great rates being offered at the moment and consumers could grab themselves a good deal if they shop around."
© Fair Investment Company Ltd