The gap between the best one-year fixed-rate savings account and the best easy-access savings account has been steadily closing and is now just 0.6 percentage points.
The best one-year fixed-rate account, offered by Metro Bank, pays 5.8 percent interest.
Ulster Bank's best easy access account pays a rate of 5.2 per cent.
As the difference between interest rates narrows, savers may wonder whether it's still worth holding on for a year.
Bridging the gap: the gap between the highest interest rate and the savings account with a fixed interest rate for one year has been reduced to 0.6%
According to interest rate monitors Moneyfacts Compare, the biggest difference in recent times between the best one-year fixed rate account and the best easy access account was in October 2022, when it was 1.85 percentage points.
The smallest difference between these accounts is 0.36 percentage points in April 2022, just before savings deals started to improve dramatically.
What's behind this?
Interest rates on term deposits have been on a downward trend since they peaked with NS&I's 6.2 percent guaranteed growth bonds.
There is now no one-year fixed-rate account that offers more than 6 percent interest.
James Blower, founder of the website Savings Guru, said: 'The reason for the small difference is that financial markets are assuming that the base rate will peak at the current level of 5.25 per cent, but will fall over the coming years.
'While the markets had priced in a base interest rate of above 6 percent a few months ago, that is why interest rates have risen so high.
'Now the banks are starting to adapt and savings rates are falling. Unfortunately for savers, I expect they will continue to do this.
“There are only two providers paying more than the best easy rate for a five-year fixed rate, and I expect those to disappear early next month.”
While Andrew Hagger, founder of personal finance website Money Comms, says: 'I'm pretty sure some of the tightening will be due to the withdrawal of the 6.2 per cent NS&I deal on October 6.'
The Guaranteed Growth bonds were on sale for five weeks and took the market by storm, topping the best buy chart for the entire period and attracting 225,000 savers.
After it was withdrawn, the second-best interest rate available on a one-year account fell to 6.11 percent, from where it now stands at 5.8 percent.
Savings experts agree that NS&I's 6.2 percent deal has roiled the one-year fixed rate bond market.
What is the advice for savers? Split 50/50 to increase speed
Some savings experts point out that savers have a mix of accounts, with emergency money in the most accessible account and any surplus in a one-year fixed-rate bond.
For example, Hagger says: 'If you put £5,000 into an easy-access account paying 5.2 per cent and £5,000 into a one-year fixed rate account paying 5.8 per cent, your average return would be 5.5 per cent are.'
As to whether it is still worth it for savers to put their money away for a year, Rachel Springall, financial expert at Moneyfactscompare.co.uk, says: 'There are still several one-year fixed rate bonds available today pay out more than 5 percent on the day. .
'Whether taking out a fixed bond is the right choice depends entirely on how quickly someone needs their money. After all, there are easily accessible accounts that pay attractive rates that offer flexibility, but these pay variable rates that can change at any time.
'Interest rates are expected to fall in the coming months, so fixed savings rates could fall even further before the year is out.
'However, there are still some providers expanding their fixed-rate savings deals, and challenger banks could buck the trend and raise their interest rates if they need to entice deposits to fund their future borrowing.'
Savers rushed to put money into fixed-rate accounts in October, according to a new report from the Bank of England.
This month saw £4.6 billion of savings deposited into banks and building societies – the highest level in a year, with most of this money going into fixed rate accounts.
Laura Suter, head of personal finance at AJ Bell, said: 'Smart savers who saw the writing on the wall rushed to fixed rate accounts in October to snap up those deals before they disappeared.'
What does the future hold for rates?
The gap between easy-to-access rates and one-year fixed rates that continue to narrow or widen will depend on a combination of movements in swap rates and competition between providers.
Savings experts agree that savings rates will continue to fall, but the question is how quickly they will do so.
Hagger says: “I think both easy access and one-year rates will fall over the next twelve months, albeit quite slowly.
'Easy access rates will be affected when the base rate starts to fall, but it's not clear when this will be – some economists predict spring 2024, but others suggest no move until the second half of next year and even then it could be there can only be one. A reduction of 0.25 percent over the next twelve months.'
While Blower says: 'Although current fixed rates are lower than they have been, they are likely to be much higher now than next year, so I would be surprised if anyone going into lockdown now looks back on that with regret.
“Although easy access rates are very high, they are likely to fall back a bit in the new year, and I will certainly be surprised if they go to 5.8 percent or even more than a basis point or two above current levels. '
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