The best new medium-term bonds and ISA savings accounts

Medium-term accounts can offer healthy returns to savers who are unwilling to lock away their cash for a long time.

Commitment is not always key when it comes to savings accounts. Yes, a long-term bond or ISA will offer you the highest rate. But if you need to pull your cash out before the fixed period comes to an end, you’ll be hit with early withdrawal fees that will decimate any accumulated interest.

And then there’s the base rate. No one knows when the Bank of England will up the base rate. But when it does, the savings market will (or more accurately, should) see some more exciting rates. If you’ve locked away your cash, you could miss out.

Consequently, medium-term accounts in the current climate could offer beleaguered savers the best of both worlds. One deal term that is frequently ignored in favour of its more rounded cousins is the 18-month fix.

The top rates

Some of the best 18-month deals currently around come from the merged Yorkshire and Chelsea Building Societies. You can earn 3.40% in a fixed bond running to the end of July 2013 or 3.20% in a Cash ISA with the same fixed term.

The ISA has a minimum deposit of £100 and allows transfers in from other providers. The fixed savings bond has a minimum deposit of £1,000.

Another good choice that trumps the advertised Chelsea and Yorkshire rates is the 18-month fix from new provider Shawbrook Bank. The bond pays out 3.90%, but has a minimum deposit of £5,000.

As this is a regular savings bond, not an ISA, you’ll have to pay income tax on the interest. So if you’re a basic rate payer, your real return will be sliced down to 3.12%. This means that the Chelsea and Yorkshire 3.20% ISA remains the best deal for those who have their heart set on an 18-month account.

Also worth a look are the 18-month bonds from Metro Bank and Chorley and District Building Society. Both pay 3.30% and have minimums of £500 and £1,000 respectively.

So how do these deals compare to accounts over a more rounded term?

Rivals

We'll start with one-year deals. You won’t get any better rates if you’re after an easy access bond. The best rate for this type of account is on Santander’s eSaver Issue 4 (3.10%) or ING Direct’s Standard account (3.00%)

However, there are some one-year bond options that beat the 18-month fixes. FirstSave is currently offering 3.60% with a minimum deposit of £1,000, while Allied Irish Bank has a 3.40% one-year bond, again with a £1,000 minimum.

However, after income tax neither beat the 18-month ISA.

Turning to ISAs, NatWest and RBS’s Preferential rate one year fixed account beats the 18-month Yorkshire and Chelsea deals outright. This ISA pays 3.35% on a minimum of £1,000. However to get hold of this rate you will need to transfer in an ISA balance from another provider’s account - otherwise the rate falls to just 2.60%.

If you are unable to do this, then the 3.20% 18-month ISA from Yorkshire or Chelsea BS is your best bet.

That is, unless you go for a longer fixed deal.

The Preferential Rate ISA from NatWest and RBS tops the two year fixed chart with a 3.90% rate. But again, you’ll need to transfer an ISA balance to be eligible for this return. If you can’t, NatWest also has a standard two year fixed rate offering 3.50% on a minimum of £1,000.

Shorter fixed deals

So predictably, if you fix for longer you’ll see a healthier return on your savings. But what if one year is too long a fix for you?

Well, instant access accounts are always an option. As I mentioned above Santander and ING Direct have the best bonds, pricing up at 3.10% and 3% respectively. On the ISA side, Cheshire BS is offering 3.06% on its Direct Cash account while ING Direct has a 3.00% easy access ISA.

Or you could look into the little-known six-month account market.

The six-month Cash ISA market leaves little to shout about. However, according to Moneyfacts.co.uk, there are now 43 six-month fixed savings accounts around, all of varying value.

The best of this bunch comes from FirstSave, which is offering savers with a minimum deposit of £1,000 a 3.28% rate – not bad at all for just six months of your money’s life!

How long would you fix for?

What’s the optimum fixed term in the current climate?

Let us know using the comment box below.

More: Earn a rate of 4.65% on your savings | The savings account that's better than the best