July 24 2014 Latest news:

Increased demand for our savings combined with expectations of a rise in interest rates has seen the returns on fixed-rate bonds hit an annual high.

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The average rate on one-year bonds fell to an all-time low of 2.52pc in August 2010 but it has steadily risen since then, according to the number-crunchers at Moneyfacts.co.uk.

The average one-year bond today pays 2.85pc, which is the highest rate since March last year. At the other end of the scale, five-year bonds are paying an average of 4.17pc, which is the highest since last June.

“Savers prepared to lock their money away have been given a boost as rates on fixed-rate bonds have increased to a 13-month high,” said Moneyfacts spokesman Michelle Slade.

“The biggest increase in rates is on short-term deals, which are the most popular amongst savers.

“Most of the best deals are from smaller building societies. If savers want to make the most of their money they may need to look further afield than the local high street.

“The markets expect a rise in the Bank of England base rate in the not-too-distant future and this is being factored in to the rates being offered to savers.”

The norm is for fixed-rate bonds to restrict savers’ access to their money in return for higher rates than are offered by instant-access savings accounts, so if you’re tempted to go for one of these accounts, it’s important to make sure you can do without your money for the relevant period.

The other thing to bear in mind is that although these bonds offer better returns, your money won’t benefit should there be a series of rapid Bank rate rises whilst your money is locked away.

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