Ray of sunshine for savers

Savers have suffered in recent years. While mortgage borrowers rejoiced as the Bank of England chipped away at interest rates, finding a savings account paying a half-decent rate has been more and more of a struggle.

Yesterday's modest increase may have given a glimmer of hope to people living off their savings or trying to put together a reasonable rainy day account.

A handful of banks and building societies acted fast in an attempt to lure customers in with increased interest rates on their fixed rate bonds. Chelsea building society, for example, has upped the rates on the latest issue of its two-year fixed rate bond by 0.35 percentage points to 5.1%, and by 0.3 percentage points to 5.2% on the three-year bond. Both these bonds require a minimum deposit of ?1,000.

Portman Channel Islands, a subsidiary of the Portman building society, has also launched new fixed interest bond issues, each with minimum deposits of ?10,000. Its one-year bond now pays 4.65%, 0.4 points more than the previous issue, while its two-year and three-year bonds pay 4.88% (previously 4.26%) and 5.09% (previously 4.45%) respectively.

These savings products lock your money away for a set period of time, say one, two or three years. They generally pay a more generous rate of interest than easy access savings accounts or notice accounts, but if you need to take cash out early you lose a substantial amount of interest on the money you withdraw.

It may be tempting for frustrated savers to jump at the most attractive saving rates, even if it means tying money up for a while. But is this the time to lock your money away for the sake of a higher rate?

"It is best to hang fire for the moment, particularly when it comes to two, three or five-year products," says Sheffield-based independent financial adviser Julian Crooks.

"A further rise in interest rates is widely expected in the not too distant future, and savings rates may well go up again."