There were positive signs for savers last week, after Skipton Building Society released a new fixed-rate bond paying 3.50%. But savers will need to lock away their money for seven years, and they’ll still receive less than the current rate of inflation once tax is deducted.
The society’s limited-edition bond matures in 2020, requiring savers to commit their nest-eggs for the rest of the decade.
But after deductions, basic-rate taxpayers will only expect to earn around 2.80% from the bond, which falls below at the current rate of inflation, at 2.9%.
The Skipton bond can only be opened in-branch, and requires a minimum commitment of £500. The bond offers both annual and monthly interest options, albeit with a small interest concession on the monthly option.
However, it is far above the remaining competition in the sector, with five-year bonds from FirstSave and Shawbrook Bank offering 2.90% (c. 2.32% net) on minimum deposits of £1,000 and £5,000 respectively.
Skipton is offering the best fixed-rate bond on the market, but you'll have to lock away your cash until 2020.
The deterioration in conditions for savers has been widely attributed to the government’s Funding for Lending Scheme, which has granted banks and building societies access to cheap funds without having to compete for them on the retail market.
And savers might not be overly convinced that the Skipton bond represents a recovery for the sector. Indeed, hopes for a resurgence might be put on ice by another local society announcing that it is set to slash its cash ISA rate by 17%.
Holmesdale Building Society, based in Surrey, has told customers with £3,000 or more in their cash ISAs to expect a fall in returns from 2.4% to 2.0% in September.
It attributed the decision to the need to “maintain its equilibrium within the financial market”, as savers desperately seek respectable returns on their savings.
The only standard savings account to topple inflation remains the First Direct cash ISA, but savers will need a whopping £40,000 to qualify for the top rate of 3.00% APR.
Discover more about the differences between fixed-rate bonds and cash ISAs in our savings guide.
Keith McDonald
Which4U Editor
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