Six and nine month fixed savings bonds: What are the interest rates and are they a good deal?

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Savers trying to choose between keeping cash in an easily accessible account or switching to a longer-term fixed income deal may find themselves in a compromise.

There is now a selection of six and nine month fixed deals and cancellation accounts that can be the perfect intermediate home for savers.

These accounts offer higher returns than easily accessible rates, but don’t require them to lock up their money for years on end – so they can switch to another deal more quickly if rates continue to rise.

According to an analysis by Paragon Bank, about 80 percent of UK savings are in easily accessible accounts.

Those considering fixed-term savings products will typically make a trade-off to lock up their money for between one and five years.

However, shorter fixed-rate savings deals are available – usually with a choice of six or nine months.

Savings interest rates have risen at a rapid pace in recent months. The best one-year fixed-income deal now pays 4.31 percent. Last month around this time, the best one-year deal paid 3.35 percent.

Many will therefore be hesitant to commit their savings for a year or more, for fear of missing out on even higher interest rates in the coming months.

This is because, once the money is held in a fixed-income account, savers typically cannot add or withdraw money until the end of the fixed term – at least without incurring a significant penalty.

Fixed-rate accounts for six or nine months can be the perfect compromise for those savers looking to take advantage of potentially higher fixed rates in the near future.

Likewise, they can appeal to those concerned about sacrificing access to their money for too long in a time of rampant inflation.

The savings platforms Raisins UK* and that of Hargreaves Lansdown Active Savings* are currently home to the highest short-term fixed interest rates on the market.

Hargreaves Lansdown’s best six-month deal pays 3.02 percent, while the nine-month best deal pays 3.5 percent.

Raisin UK’s platform offers a nine months deal pay 3.6 percent* and a six months deal pay 2.61 percent.*

Saver deposits are protected up to £85,000 per person under the FSCS through all providers on both platforms.

Upward trend: interest rates are expected to continue rising in the coming months

Raisin is also exclusively offering £30 This is Money readers who sign up via one of the links above and deposit £10,000 into both accounts.

This means that a £10,000 deposit into Raisin’s nine-month deal at 3.6 percent could effectively yield an even higher return with the bonus included.

After nine months, £10,000 would have earned a total of £269 – with the bonus included, it would have been £299.

While these rates are lower than the longer-term fixed-term deals, they are clearly higher than the best easily accessible accounts.

The best easily accessible bills currently pay up to 2 percent. Outlier Al Rayan Bank pays 2.35 percent, while Yorkshire Building Society pays 2.5 percent for deposits up to £5,000.

Those who save £10,000 in Al Rayan’s best-buy deal will earn £177 in interest after nine months. That’s £92 less interest than Raisin’s best nine-month solution, or £122 less interest when you factor in the £30 bonus.

The best one-year and two-year fixed-rate deals on the market currently pay 4.31 percent and 4.61 percent, and are offered by Charter Savings Bank.

As for a longer-term deal, Nationwide also just launched a 4.75% three-year deal.

While it may seem like a sensible strategy to adopt for a shorter term based on the belief that interest rates will continue to rise, it’s important for savers to understand that it’s a gamble after all.

Anna Bowes, co-founder of Savings Champion, says: “Short-term fixed-income bonds are very popular right now.

“For those not quite willing to hold on to their money for a year, there are some competing short-term bonds that can fill the gap.

That said, these are a lot lower in price right now and of course no one can predict when prices will peak and fall again – or at least stop rising.

“So you might find that in six or nine months’ time, long-term bonds are no higher than they are now, and you’ve earned less interest in the meantime.”

What are the rates on cancellation accounts?

Another alternative for savers is a cancellation account. These deals allow savers to withdraw their money after a notice period, usually between 30 and 120 days, but can offer savers better returns than they would otherwise get with an easily accessible account.

The average cancellation account pays 1.64 percent, according to Moneyfacts, compared to the average easy-access deal that pays 0.98 percent.

The highest paying cancellation accounts pay more than the best easily accessible deals. For example, the best 95 days notice is offered by Charter Savings bank and pays 2.7 percent on balances between £5,000 and £1 million.

Raisins UK* and Hargreaves Lansdown’s Active saving* also offer a variety of cancellation accounts that allow savers to skip the best easily accessible deals.