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Bank Bonds Offering Savers Little Solace

Wed, 26 May 2010

While it is well documented that banks and building societies have drastically cut the interest rates being offered on savings accounts, bond rates continue to offer little solace to savers. The Bank of England decision to slash the base interest rate to a record low level of 0.5 per cent unsurprisingly led to banks lowering interest rates, to the point that savers are now struggling to find an account which will maintain the value of their money once inflation is taken into account.

It is a similar story with bonds, as leading one-year fixed-rate bonds now pay just half of the 5.3 per cent rate of inflation. The Post Office and Kent Reliance are currently offering the best deals of this kind, offering 2.4 per cent after tax, whereas Barclays is offering an interest rate of just 1.4 per cent.

Banks have typically been more generous to consumers who are willing to tie up their money for a longer period of time, and while that remains the case, the interest rates being offered remain unappealing. The top rate on a two-year fixed rate bond currently stands at 2.96 per cent after tax, meaning savers are once again struggling to cope with the effects of inflation.
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