Fixed Rate Bonds offering best returns

Savers that are prepared to lock their savings away have exposure to the best interest rates on savings accounts for over a year, ahead of isas and other savings vehicles, according to financial information company Moneyfacts.

The firm said that the interest rates available on fixed rate bonds with relatively short terms have been on the rise since August 2010.

However, we can't ignore the fact that they have been increasing from an all-time low as a result of the recession which helped to bring the Bank of England base rate down to the lowest level ever recorded – 0.5%.

The movement suggests the Bank rate will rise in the coming months.

According to Moneyfacts, the average one-year fixed rate bond currently pays 2.85%, marking the highest level since March 2010.

Savers looking for higher rates could consider a two-year bond, which will currently get you an average of 3.42%. Push your term out further to three years and you can expect to get an average return of 3.7%, and for the highest rates - five years with an average interest rate of 4.17%.

Michelle Slade, of Moneyfacts said that the most significant increase to rates is on short-term bonds, which are currently the most popular amongst savers.

However, she added that savers could face hefty penalties if were to withdraw from their funds before the term expires, so they should consider all other savings account options before committing.