The credit crunch has been good for savers, with fixed-rate bonds paying well over the Bank of England base rate (currently 5.5 per cent). Banks and building societies have been falling over themselves to woo savers so they don't need to rely on the troubled money markets to raise funds. But with UK interest rates falling, a semblance of calm has returned to the markets. As a result, could the days of the high-paying bond be drawing to a close?
Not to judge by Alliance & Leicester's launch last Thursday of a fixed-rate savings bond paying 7 per cent.
"In theory these higher rates should be coming down," says Susan Hannums, savings manager at independent financial adviser AWD Chase De Vere. "However, the A&L offer might indicate that institutions still have massive funding needs."
Elsewhere, although there are still some good deals to be found, rates are generally falling.
"There has been a downturn in the past weeks, with six providers reducing rates by as much as 0.81 per cent," says Rachel Thrussell, head of savings at comparison website Moneyfacts.co.uk.
Typically, the bonds now paying a lower rate are those for one year or less. For example, Abbey has cut its six-month bond by 0.25 per cent, giving a current pay rate of 6.1 per cent. Birmingham Midshires has reduced its one-year fixed- rate bond by 0.3 per cent so it now pays 5.75 per cent.
These bonds are savings products that offer a guaranteed return over a set period. The best known are those issued by National Savings & Investments.
But Alliance & Leicester, with its 7 per cent rate, is the stand-out product, says Ms Hannums. "Savers should snap up the deal while they can because savings rates will come down this year."
Other accounts worth considering, she suggests, are London Scottish's one-year bond, which pays 6.85 per cent and requires a minimum investment of £2,000, and Stroud & Swindon's six-month deal, which has a rate of 6.81 per cent and requires a deposit of at least £500.
Some providers offer their best bonds only to existing customers. Nationwide building society, for example, launched a new range of fixed-rate bonds last week with different rates for members and non-members.
Its one-year e-Bond pays 6.25 per cent and is available online to anyone with a Nationwide FlexAccount. Those who aren't current account holders can get a one-year bond paying slightly less at 6.05 per cent.
As well as member-only deals, there are several other restrictions to look out for. Many fixed-rate savings bonds allow only a one-off lump sum to be invested, so you cannot add to the capital. And if during the term you need access to the money, you will probably be subject to a penalty such as loss of interest; in some cases, you may be required to close the account completely. So it is a good idea for customers to have a safety net of savings that are more easily accessible. Otherwise, breaking into a bond could cause their hard-earned returns to disappear.
Some providers will pay bumper rates to savers who commit not only to tying their money up for a set period but also to taking out another financial product. For instance, Abbey has a one-year Super Bond paying 8.1 per cent but savers also need to invest a minimum of £1,500 in an Abbey Guaranteed Growth Plan.
"One reason that linked products are being introduced is to increase both product holding per customer and the longevity of the relationship, so it makes sense for banks to offer such incentives," says Kevin Mountford, head of savings at comparison site Moneysupermarket.com. "The key question is, if you look beyond the lead product, do the others stack up?"