Get a better rate on your fixed-rate savings

Many of last year's best-buy fixed rate bonds are about to mature. Find out what you should do with these savings now.

This time last year, fixed rate bonds were a great choice for savers, with the best-buys paying more than 7%. In fact, in July 2008, several bonds offered rates this good and only locked your savings away for a year.

If you managed to take out one of these fantastic 12 month bonds, you must be feeling pretty pleased with yourself right now. After all, savings rates have totally collapsed since then with the economic crisis forcing the base rate down to a record low of just 0.5%.

But, as they say, all good things must come to an end. The bond you took out last summer will soon mature, if it hasn't already.

So, I have a gentle reminder for you: have you got round to checking what rate you'll earn when your bond closes?

If you haven't yet, I think it's about time you did because you might be disappointed.

What rates are last year's best-buys earning now?

A year ago, ICICI Bank UK offered a market-leading bond which paid what now looks like a staggeringly high rate of 7.20% on its One Year HiSave Fixed Rate Account.

But now it's a different story. At the outset, savers who took out this account could have opted for 'auto renewal'. This means their savings will automatically roll over into the latest issue of the bond at maturity. So today, savers will be moved onto a rate of 3.45% on the new one year bond. In today's market, this rate is actually pretty good.

That said, savers without auto renewal should still be contacted by ICICI at maturity and informed of the other ICICI savings options. But, if savers chose to do nothing, then cash would be transferred back to a linked ICICI savings account. (All ICICI bonds must be linked to an ICICI savings account.)

If, for instance, the bond was linked to the ICICI Easy Access Savings Account, you would end up earning a much lower interest rate of 1.69%.

Another of the most competitive bonds in 2008 - the 1 Year Internet Fixed Rate Bond from Birmingham Midshires - paid a great rate of 7.11%. At maturity, savers were given the opportunity to move their cash into a new two-year bond with a rate of 4.25%.

But those that did nothing had their savings transferred into the Birmingham Midshires Instant Access Reward Account which pays a current rate of just 2.50%.

In fairness, this rate isn't too bad for easy access savings right now, but it's far lower than last year's rate, and also pretty low compared with today's top bonds. And you can get a better easy access savings account, such as the Alliance & Leicester Online Saver Issue 5 (paying 3.15%) or the ING Direct Savings Account (paying a fixed rate of 3%).

A third big hit with savers last summer was the Icesave Fixed Rate Savings account. The bond regularly appeared in the best buy tables with a rate of 7.06%. But, of course, the Icelandic bank is now defunct. I do hope displaced savers were able to find a decent alternative home for their former Icesave cash. That's if they got it back at all (those living in the Channel Island and the Isle of Man sadly were not protected under the UK Government's compensation scheme).

Today's best-buy bonds

So, you can see it's a big mistake to do nothing when your bond matures. But, what should you do? Well, you could think about moving your savings into one of the new best-buy bonds.

Sadly, the top bonds on the market this month don't pay anything like 7%. But the good news is the rates are starting to climb at long last.

If you want to roll your savings over into another one year bond, the best rate you'll be able to earn is 3.85% from the Post Office One Year Growth Bond. True, that's far below the 7% plus return you have enjoyed over the last 12 months. But, it's still a whole lot better than the pitiful amount of interest you might get if you leave your savings where they are.

If you can cope with leaving your money untouched for two years, you can earn better rates from the AA Internet 2 Year Fixed Rate Bond and the ICICI HiSave 2 Year Fixed Rate Account. Both bonds pay 4.35%.

But if you're more interested in locking your money away for the long-term, you'll be pleased to know you can now earn 5.4% on your savings, with the new Online 5 Year Fixed Rate Bond from Barnsley Building Society.

But, what if you don't want another bond?

Even if you don't want another fixed rate bond, that's no excuse for leaving your savings to languish. If you've had enough of bonds, you can choose something where your money can be easily accessed instead. But I'm afraid you'll have to accept a lower return.

Today, you can earn over 3% and still get your hands on your cash whenever you need to. Take a look at our easy access savings accounts table to find out about today's best buys.

Compare all kinds of savings accounts at lovemoney.com

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