Beat the base rate: the savings accounts that pay 4% plus
After a prolonged series of interest rate cuts, the base rate has dug its heels in hard, holding firm at 0.5% for the third consecutive month.
This comes as little surprise after the Bank of England governor, Mervyn King, hinted heavily last month that interest rates will continue to stay low for the rest of this year.
This renewed sense of stability has sparked increased confidence among savers. Many feel they have a better idea of where they'll stand on rates over the next year, and may now be more prepared to lock their money away.
As a result, there has been a surge of competition among fixed rate savings providers. But which bonds offer the best deals?
One year bonds
With the base rate at its lowest ebb in the Bank of England's history, the only way for it to go in the long term is up.
If you want to benefit from a competitive deal now but would also like the freedom to move your money should interest rates improve in the future, a one year fixed rate bond could be for you.
Here are my top three deals for singe-year savers.
| Savings Account | Interest rate (AER) | Notes |
| ICICI HiSAVE One Year Fixed Rate Account | 4% | Minimum deposit of £1,000 |
| Skipton BS Online Fixed Rate Bond Issue 2 | 3.87% | Minimum deposit of £500 |
| Bank of Cyprus UK Bond | 3.7% | Minimum deposit of £1 |
If you can afford to lock away £1,000 for the next twelve months, ICICI's bond - currently paying an impressive 4% - offers the most competitive rate on the market.
Not far behind in the rate race is Skipton BS, paying 3.87% on balances of at least £500.
If you have less than £500 to invest but still want to bag a decent one year deal, the Bank of Cyprus is offering 3.7% on deposits of as little as £1.
It is important to be aware that if you save with the Bank of Cyprus not all of your money will be protected under the UK's Financial Services Compensation Scheme (FSCS). The Central Bank of Cyprus Deposit Protection Scheme will cover 90% of deposits up to €20,000, while any sum above this up to £50,000 is guaranteed by the FSCS.
Conversely, although ICICI is the UK arm of an Indian bank, 100% of deposits up to £50,000 are covered by the FSCS.
Two year bonds
If you're willing to commit your money for a little longer, you may find a two year fixed rate bond offers a higher rate of return on your savings.
Here are my two favourite deals.
| Savings Account | Interest rate (AER) | Notes |
| ICICI HiSAVE Two Year Fixed Rate Account | 4.35% | Minimum deposit of £1,000 |
| Birmingham Midshires Internet Two Year Fixed Rate Bond | 4.25% | Minimum deposit of £1 |
Once again, ICICI comes up trumps. If you have £1,000 to squirrel away for two years, you could receive a return of 4.35%. That's nearly nine times the current base rate!
If you don't have a spare £1,000, Birmingham Midshires' two year fixed rate bond may be worth considering. It comes with a rate of 4.25% on savings starting from £1.
Five year bonds
If you're confident you won't need to get your hands on your cash in the next five years, you could invest for the long haul and go for a five year fixed rate bond.
Here are two of the market's top deals.
| Savings Account | Interest rate (AER) | Notes |
| AA Telephone Fixed Rate Bond | 4.5% | Minimum deposit of £500 |
| ICICI HiSAVE Five Year Fixed Rate Account | 4.4% | Minimum deposit of £1,000 |
Right now, both the AA and ICICI are offering appealing rates of 4.5% and 4.4% respectively.
However, it's worth noting that the top five year fixed rate is only marginally higher than that on offer from the best two year deal.
I think it's worth asking yourself whether earning an extra 0.15% by going for the AA bond (rather than ICICI's two year deal) is worth risking the possibility that rates will increase before your five years are up.
Fixed rate facts
1. Access to your cash will be limited.
Retrieving your pennies from a fixed rate piggy bank is no easy feat. Fixed rate deals lock in your funds for at least twelve months, so before you stash your cash think carefully about how much money you can realistically afford to invest.
If you take your money out before the lifetime of your bond expires, you are likely to face a penalty charge or lose a large chunk of the interest you've earned.
Therefore, if you suspect you may need to access your cash in the near future, you may be better off opting for an easy access savings account.
2. There are strict rules on how much cash you can deposit.
Many of the top paying fixed rate bonds require a large initial investment.
If you don't have a sizeable stash of spare cash, you could be limited in your choice of fixed rate deals.
Furthermore, many fixed savings accounts require you to deposit one lump sum and will not allow you to make any additional investments during the term of your deal.
3. Fixing your rate is always a gamble.
A fixed rate deal guarantees a specific rate of interest for a set period of time. While this protects your rate from suddenly plummeting, it also means the return you get on your savings can't increase.
Therefore, if the Bank of England does unexpectedly raise the base rate this year, your fixed-rate rainy day fund will not benefit from this.
**Articles featured on BeatThatQuote.com are for information purposes only and reflect the views of individual writers. Articles are not, and should not be considered as, financial advice. BeatThatQuote.com strongly encourages our readers not to rely solely on information contained within this article/our website, but to conduct their own research and seek independent advice about the financial products they purchase.**
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