Fixed-rate bond interest rates have increased by more than 400% in a year

Interest rates have soared on fixed-rate bonds over the past 12 months, making them far more rewarding for people with a lump sum to save.

Share this guide
Fixed rate bonds have increased

For the past few years, savings accounts haven’t had the headline interest rates that we have hoped for - until things started changing during a turbulent 2022.

Amidst the cost of living crisis, inflation at a 40-year high and a September mini Budget that caused chaos, providers started to battle with each other by trying to produce the best rates to win customers. This meant we could finally start to see some return if we put our money into a savings account; especially with fixed-rate bonds.

Changing interest rates

In January 2022 the average interest rate for a one-year fixed rate bond was 0.71%, but by the beginning of December 2022 it had risen to 3.61%.This month, the average interest rate for a one-year fixed rate bond stands at 3.59% - a slight decrease from December - but still a 406% increase from last year.

In comparison, a five-year fixed rate bond had an average interest rate of 1.62% in January 2022 and 11 months later it had risen to 4.36%. These averages look at all fixed-rate bond accounts that include a minimum deposit of £500 or £1,000 and are open to any savers.

Updated 20 April 2023
Bond durationAverage interest rate in Jan 23Average interest rate in Dec 22Average interest rate in Jan 22% change from Jan 22 to Jan 23% change from Dec 22 to Jan 23
One year3.593.610.71405.63-0.55
Two years3.873.930.98294.9-1.53
Three years3.893.911.15238.26-0.51
Four years4.023.61.73132.3711.67
Five years4.134.361.62154.94-5.28

Data sourced from Defaqto

However, there are murmurs in the industry that we shouldn't expect further growth as the market is starting to calm after a volatile year. Providers are pulling back from previous offers and high interest rates, so now we are starting to see returns fall. 

For example, the average interest rate for a two-year fixed-rate bond in January 2023 is 3.87%, lower than December’s 3.93%. There are similar patterns across other types of fixed-rate bonds, as the December 2022 to January 2023 comparison highlights only a slight movement.

Interestingly, the exception to this pattern is a four-year fixed-term bond as in December 2022 the average interest rate was 3.6% but in January 2023 it’s now 4.02% - a difference of 11.67%. 

Taking advantage of fixed-rate bonds

Looking at this data, now would still be a good time to consider a fixed-rate savings account to make the most of the current interest rates. Plus, your savings journey doesn’t need to start with a large sum. 

According to savings stats from the FCA, 34% of adults had either no savings or less than £1,000 in a savings account. The good news is that some savings accounts allow you to open them with as little as £1, so it’s always important to compare savings accounts to find the best one for you. 

Fixed-rate bonds are proving popular for savers as they are offering decent interest rates and encourage you to lock your cash away for a period of time. Therefore, this type of savings account works well if you have a lump of cash that you would like to save but don’t need it within the next year, for example the £1,000 you’ve carefully saved up for a future purpose. 

Get help with the cost of living

Prices are soaring across the UK, and wages aren't keeping up. To help people manage the cost of living crisis, here are our guides to saving on bills, dealing with debt and raising some extra cash

Browsing the market

Consequently, we’ve taken a look at some of the best fixed-rate bonds currently available, and these start with either a £500 or £1,000 deposit. 

At time of writing, the best fixed-rate bonds are with First Save and its one-year term has an interest rate of 4.3%. Alternatively, if you don’t mind how long you lock away your money for, the best fixed-rate bond in the market is a three-year term from First Save with an interest rate of 4.8%. It’s worth noting that its two-year fixed rate bond has an interest rate of 4.7%, so the difference you earn is only marginal. 

Elsewhere, Vanquis 1 Year Savings Bond has an interest rate of 4.2% and its two-year fixed-rate bond has an interest rate of 4.4%. For longer term saving, Monmouthshire Building Society 5 Year Fixed Rate Bond - Issue 6 has an interest rate of 4.5%. All of these accounts mentioned are also covered by the FSCS, so savings up to £85,000 are protected. 

Remember there is always a chance that interest rates could rise during the fixed-rate term, which means you might not continue to get the best rate. But, they could also fall and it would mean your savings aren’t impacted. Fixed-rate bonds can also help you to plan for your savings more easily , as you’ll know the exact amount you’ll have at the end of the term as the interest rate is guaranteed.

During this difficult time it makes sense to get as much interest as possible from your hard earned savings, and a fixed-rate bond could be the answer.

See the top-paying instant access, notice and fixed rate savings accounts on the market today

About Lucinda O'Brien

As a trained journalist, Lucinda has spent the past 10 years writing and editing content for regional and national titles, including The Mirror, WalesOnline and Manchester Evening News. She is now a personal finance editor and specialises in savings, helping people to make confident financial decisions so they can save for what matters most.

View Lucinda O'Brien's full biography here or visit the press centre for our latest news.