Lock up your cash now – today’s 4.60% savings rates look ‘unbeatable’

The International Monetary Fund reckons that today’s inflationary spike is only temporary and consumer prices will rapidly start to fall back.

When inflation is brought back under control, central banks will ease monetary policy and interest rates will return to pre-pandemic levels, the IMF says.

Once that happens, savers could suddenly find themselves getting interest rates of just one or two percent a year all over again.

While that will be hugely disappointing, one upside is that the real terms value of their cash deposits will be eroded at a slower speed as inflation tails off.

There is another potential upside. 

Any saver who has the cash to lock into a long-term fixed-rate savings bond now could secure today’s higher interest rates for years into the future.

They could still be getting as much as 4.60 percent a year in 2028, when best buy savings accounts pay only a fraction of that.

Better still, they could get an inflation-busting return for years.

This could be a great opportunity for those willing and able to take advantage, although as ever, there are no guarantees.

Savers might have to act fast, though, as banks and building societies will start slashing rates on a fixed-term bonds as soon as inflation starts to fall.

In fact, the process has already started.

A few days ago United Trust Bank was paying a market-leading rate of 4.65 percent its five-year fixed-rate bond, the highest on the market.

It slashed that to 4.55 percent after the IMF report went live. I reckon UTB’s 4.65 percent could prove to be the high watermark for savings rates.

Savers shouldn’t despair, though, they’re still time to grab a great long-term rate, with Monument Bank account paying a fixed 4.60 percent for five years.

However, this is only available via its mobile banking app and the minimum initial deposit is high at £25,000.

Tandem Bank also pays 4.60 percent in its five-year bond that can be opened online or via mobile phone with as little as £1.

Close Brothers Savings pays 4.55 percent online, but with a minimum opening amount of £10,000.

After that, five-year fixed rates drop swiftly. Paragon Bank pays 4.35 percent on an account that can be opened online or by post, with a minimum initial deposit of £1,000.

RCI Bank pays 4.25 percent online on a minimum opening balance of £1,000.

These are all riding high in the Moneyfacts best buy tables today but savers who locked in last October got more than five percent.

Fixed rates have fallen steadily since then as banks and building societies anticipate inflation and interest rates will fall.

They don’t want to commit to paying five percent a year all the way through to 2028, when interest rates are likely to be a fraction of that.

Inflation is currently sky-high, surprising analysts by climbing again in February, hitting a hefty 10.4 percent as the cost-of-living crisis rages.

Yet this could prove to be the turning point. The Office for Budget Responsibility (OBR) reckons inflation will fall to just 2.9 percent by the end of this year.

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If the OBR’s forecast is correct (and it looks a little optimistic) a saver who locks into an interest rate of 4.60 percent today will be sitting pretty by Christmas.

By then, the value of their money will actually be rising in real terms.

That doesn’t happy very often, and especially not today, when even the best savings rates pay less than half inflation.

The danger is that savers lock in now, only to see newly released fixed-rate bonds pay even more.

I don’t think that’s likely, but it could happen. Inflation is proving sticky, and the IMF and OBR could both be wrong.

Another obstacle is that many people will be unable to tie up a large sum of money for five years.

If that’s an issue, Zenith Bank pays 4.45 percent a year for three years on a minimum £1,000 deposit, while Paragon pays 4.35 percent on £1,000.

By the end of the year, both should beat inflation, and by an even greater margin in 2024 and 2025.

However, a five-year fixed-rate bond will help you beat inflation all the way to 2028, and is well worth considering today.

Assuming inflation falls, as all those clever analysts are claiming.