Best fixed savings account hits 4.66% as rates surge

Fixed-rate one-year savings are now rising as money markets forecast that the Bank of England will raise key rates higher than previously thought.

The typical one-year fix is ​​now paying 3.9 percent, according to Moneyfacts, the highest level since December 2008 and up from just 1.08 percent a year ago.

And today, Smart Save Bank have increased their one-year agreement to pay 4.66 percent Cynergy Bank have also pushed its deal to a higher 4.65 percent to outshine the competition.

In an unusual scenario, this now means this top 12-month fix pays more interest than the top five-year fix — Atom Bank’s 4.65 percent.

Savers who put £10,000 into SmartSave’s deal will earn £466 in interest over the course of a year.

That’s £111 more than savers will earn with £10,000 best easy access savings rate paying 3.55 per cent.

At the beginning of February, the best fix for a year was paying 4.16 percent.

Earlier this year, fixed rates appeared to have peaked, but they have risen again in recent days after higher-than-predicted inflation pressured more key rate hikes.

The average fix for a year has risen from 3.61 percent in February to 3.9 percent now.

– View the best fixed rate savings deals here.

Why are the one-year fixes rising?

Rates are rising as a result market expectations about where the base rate will peak.

These expectations are reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange one stream of future fixed interest payments for another stream of floating interest payments, based on a fixed price.

Swap rates have risen slightly recently, partly because inflation has turned out to be more stubborn than expected.

Inflation fell less than expected to 10.1 percent last month, partly due to a huge increase in food prices, an increase of 19.1 percent compared to the same period last year.

Economists expected inflation to fall from 10.4 percent in February to 9.8 percent.

Instead, last week’s numbers showed double-digit inflation for the seventh month in a row.

The Bank of England, which aims for an inflation rate of 2 percent, is now expected to raise key interest rates (currently at 4.25 percent) further than expected in the hope of curbing inflation.

A 0.25 percentage point increase to 4.5 percent next month and a further increase to 4.75 percent in the summer are now considered almost certain by the markets.

Anna Bowes, co-founder of savings website Savings Champion, said: ‘Short-dated bonds are rising again and competition is fierce.

Markets are predicting that the Bank of England will need to raise interest rates to higher levels than previously thought as inflation proves to be more stubborn than expected.

“Most experts last week expected inflation to fall back to single digits.”

A spokesperson for the savings website, Savings Guru, added: “We are living in unusual times with the best one-year interest rate currently above the best five-year rate.

The reason the one-year interest rate is so high is that it reflects the swap rate, which has reached 4.72 percent for one year.

This means that the market expects base rates to peak in the coming year and then fall, which is why longer-term swap rates are below 4%.

“Previously, the market calculated 4.25 percent as a peak for the base rate, but now we are expected to go to 4.5 percent in May and peak at 4.75 percent.”

How high will one-year fixes go?

Given the market expected base rates to rise even higher in October following Liz Truss’s mini-Budget fiasco, it’s hard to imagine that the top rates will get much better.

Says Anna Bowes: ‘The market forecast for the base rate is not as high as it was in October when we thought the base rate should be raised overnight to 6 per cent – 4.75 per cent may be a bit long but it would be good to see some more to come.

The Savings Guru also believes that interest rates are unlikely to rise much higher as longer-term fixes have already peaked.

“We have always thought that the base rate will be 4.5 percent in May and that view has not changed.

“Currently, we don’t expect it to go higher, so our view is that savers might get one or two basis points more a year, but longer-term fixed rates have almost certainly peaked.

“Easily accessible rates have room for growth and we think the best buys will move toward 3.75 percent as the base rate moves to 4.5 percent.”