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Saver demand for short-term fixed rates surges

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Savers have continued to focus on one-year fixed rate accounts, Paragon Bank analysis of market data has revealed.

Paragon’s analysis of CACI data showed that 59% of adult ISA and non-ISA fixed-rate savings accounts opened in the 12 months to the end of May this year was a one-year rate. A further 33% opted for an 18-month or a two-year account, with just 7% choosing terms beyond two years, and only 1% selecting a five-year deal.

The data from CACI showed that 46% of savers chose a one-year fixed-rate deal in the same period last year, with 16% choosing a term longer than two years.

On a standalone monthly basis, 58% of fixed-rate savings accounts opened in May alone were a one-year rate, with 38% opting for an 18-month or a two-year account. Only 4% chose terms beyond two years, with 0.4% selecting a five-year deal. During the same month last year, 16% of fixed-rate accounts opened were for a term longer than two years.

CACI’s figures show that £120 billion was placed in new fixed-rate accounts of terms of two-years or less in the 12 months to the end of May, compared to £30 billion in the same period ending in May 2022. Conversely, £8.2 billion was placed in fixed-rate accounts with terms longer than two years in the 12 months to the end of May 2023.

Fixed-rate savings accounts have been rising throughout the summer in response to surging Swap rates, although Swaps have started to reduce in the last two weeks, suggesting that fixed-term deals could have reached their peak.

Savers choosing shorter-term fixed rates may have missed out on locking in the highest rates seen for 15 years by avoiding three or five-year deals.

Derek Sprawling, Paragon Bank Savings Director, said: “Although it’s fantastic that we have seen savers acting and switching their money into fixed-rate accounts, the vast majority of that money is in one and two-year rates. With the market expecting interest rates to reduce over the medium term some savers might see value in longer-dated options available, even if the rate is lower than the best one-year rate available.

“With the Swap rate starting to head downwards on the back of improved inflation data, we could see savings rates start to follow. There is a perception that savers don’t see any return on five-year rates until maturity, but many providers, including Paragon, allow savers to take interest on an annual basis, which they can then reinvest.” 

For further information contact:

Michael Clarke
Head of Media Relations
Paragon Bank

Notes to editors:

CACI produces an analysis of deposit stock from the main deposit banks, providing data from more than 30 providers, based on individual cash savings accounts, by combining all account types, both ISA and non-ISA.

Paragon Bank PLC is a subsidiary of the Paragon Banking Group PLC which is a FTSE 250 company based in Solihull in the West Midlands. Established in 1985, Paragon Banking Group PLC has over £14 billion of assets under management, helping more than 340,000 customers to achieve their ambitions.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551.