Borrowers and savers looking for fixed rate deals are seeing very different fortunes. As the cost of fixed rate mortgages continues to rise, so do the rates on fixed rate bonds as providers look to their savings book for funding rather than the money markets.
Michelle Slade, analyst at Moneyfacts.co.uk says: "Volatility in the money markets is prompting providers to turn to their savings book to fund their lending activities.
"In order to attract savers from their competitors, providers are offering ever increasing rates. At the beginning of March just three bonds paid a rate of 4.00 per cent or more. As of today, that number has grown to 124."
According to Moneyfacts, Clydesdale Bank and Yorkshire Bank are leading the way offering a rate of 5.00 per cent on their five year bonds.
"In this low interest rate environment that is an extremely competitive rate of return, but savers need to balance this return against expected rate rises in future years," says Ms Slade. "When you think that no one will go any higher, someone else launches a new bond paying an increased rate. There doesn't seem to be any limit to how high the providers are prepared to go."
However, in the last month, according to Moneyfacts, borrowers have seen large increases in the cost of fixed rate mortgages, with the average five year fixed rate mortgage increasing by 0.41 per cent since the beginning of June.
"While this is bad news for borrowers," says Ms Slade," savers are receiving a welcome boost after months of watching the interest rate on their money plummet."
Rise in average fixed rate bond rate
| 1 year | 2 year | 3 year | 4 year | 5 year | |
|---|---|---|---|---|---|
| Mar | 2.78% | 2.83% | 2.98% | 2.89% | 2.86% |
| Apr | 2.79% | 2.97% | 3.13% | 3.25% | 3.08% |
| May | 2.86% | 3.12% | 3.30% | 3.39% | 3.36% |
| Jun | 3.04% | 3.40% | 3.48% | 3.57% | 3.77% |
| Today | 3.09% | 3.50% | 3.63% | 3.73% | 3.99% |
| Increase in rates, March-today | 0.31% | 0.67% | 0.65% | 0.84% | 1.13% |
Changes in average fixed rate mortgage costs
| 2 year | 3 year | 5 year | |
|---|---|---|---|
| Mar | 4.74% | 5.37% | 5.63% |
| Apr | 4.65% | 5.22% | 5.54% |
| May | 4.59% | 5.20% | 5.53% |
| Jun | 4.67% | 5.18% | 5.57% |
| Today | 5.06% | 5.52% | 5.98% |
| Increase in rates, March-today | 0.32% | 0.15% | 0.35% |
Source: Moneyfacts.co.uk; rates as at 25 June 2009
You can see up-to-date information on savings rates, supplied by Moneyfacts, on our website: www.investorschronicle.co.uk/ResearchTools
