One-year fixed savings deals paying 5%-plus look too good to pass up

Savings rates have risen significantly since Easter, and there are now 17 banks paying at least 5 percent for an annual fix in This is Money’s top buy charts.

When you consider where we’ve spent most of the last decade and a half, that’s a real turn-on for the books.

If you had asked me 18 months ago when savers would get 5 percent interest rates again, I would have suggested it’s unlikely to last long — even if you lock in for five years.

But now the best one-year fixed rates in our savings tables pay up to 5.30 percent.

Even as rates continue to rise, one of these accounts could be worth it if you have some savings that you don’t need to access immediately.

I’ve always questioned the wisdom of tying up savings for a long period of time, if you’re willing and able to commit money for five years then you should probably at least consider investing it instead .

Investing puts your capital at risk in a way a savings account doesn’t: if your investment falls in value you could end up with less than you put in, while an FSCS protected savings account will cover you up to £85,000 even if your bank goes bankrupt.

Meanwhile, investments aren’t guaranteed to yield good returns — and the stock market could turn out to be lagging behind cash in any given year.

Nevertheless, numerous studies going back over very long periods of time have shown that over a longer period of time, the stock market has provided the best chance of a true return on your money, i.e. a return that is higher than inflation.

For example, the Barclays Equity Gilt Study found that over the 20 years to 2022 – a particularly bad period for the UK stock market – equities delivered a real average annual return of 2.9%, compared to -1.1% for cash.

Yet these studies also show that the shorter the period you invest, the more likely you are to lose money when the markets fall.

The 2023 Barclays Equity Gilt Study shows how stocks (stocks) performed against gilts and cash for various holding periods. The first column shows that stocks outperformed cash in 84 out of 121 years over a two-year holding period; thus, the sample-based probability of stock outperformance is 69%. Extending the holding period to ten years increases this to 91%.

And sometimes, even if you firmly believe in the long-term arguments of investing, a guaranteed short-term return can be worth considering.

Which brings me back to those shorter fixed-rate savings agreements: a guaranteed return of more than 5 percent over a year is quite a prospect.

The stock market may be right thanks to price movements and dividends over the next 12 months.

But as inflation and the knock-on effects of a dramatic round of rate hikes around the world continue to rattle markets, you can understand why some are cautious.

That caution among investors may mean that there are many bargains to be had in the stock market, or it may be justified. We won’t know which one it is until this time next year.

In the meantime, if you’re careful, you can put some of your money into a fixed one-year period by paying 5 percent plus and investing the rest.

The question is whether the interest on savings will continue to rise?

There’s every chance they do. As of the day this was written, a one-year best fix of 5.26 percent was replaced by a bill of 5.3 percent.

However, as with the aftermath of the Truss/Kwarteng mini-Budget debacle, in this mini-inflation panic it is possible that savings rates are ahead of the Bank of England – and we have already seen most of the increases.

You could look at it in two ways.

Firstly, even if the fixed rate for a year goes to 5.75 per cent from here, on £10,000 that is only £45 more interest over 12 months than at 5.30 per cent. Maybe it’s worth passing up that opportunity and getting a good deal now.

Alternatively, you can put in some of your one-year fixed-rate savings now and wait a month or so — rates could have risen by then — and then do the rest.

Whatever you do – and even if you don’t want to lock in your savings – make sure to sign up for our savings alert emails, which send you the details of the top deals as they come in.

Many of the really good ones don’t stick around for long.