New savings bond 'blows competition away'

>> More info: Chorley two-year bond

Verdict

This account from Chorley Building Society is great news for the savings sector, which has seen a number of rate cuts over the past few years, particularly in the Isa market.

There has been a smattering of competition in the fixed rate bond market, but as a whole rates have continued to fall. This product launch hints at a possible rejuvenation.

If a saver deposits £15,000 into the account they will earn £667 over the two years, after basic-rate tax is deducted. Higher-rate taxpayers will accrue interest of £499.

Anna Bowes of independent savings site SavingsChampion.co.uk said that the bond had "blown the competition away" and was great news at a time when savers are desperate for better rates for their cash.

"However, this could be a double-edged sword," she said, "as the demand for better paying accounts could outstrip the supply and the provider may not be able to keep the account on the market for long."

Savers who are interested in this account should act quickly to take advantage of the rate, Ms Bowes added.

Should I fix for two years? When will savers see a rate rise?

A rise in interest rates in 2014 is looking unlikely. That's the conclusion of analysts and the market following the Bank of England's quarterly Inflation Report in August.

The Bank Rate is set to stay at 0.5pc until next year, after the Bank of England signalled it is expecting slower rises in wages. So, expect the first increase around February or March in 2015.

A rate of 2.75pc will feel like a good rate if the Bank Rate still hasn't risen by the middle of next year.

>> More: How shifting interest rate predictions are affecting savings deals

Isa or bond: which will give more interest?

On a deposit of £15,000, Chorley's two-year fixed rate bond will pay savers £667 after basic-rate tax is deducted, or £499 after higher-rate tax is taken away.

The best two-year fixed rate Isa on the market currently is Barclays' "Flexible Cash Isa" paying 2.02pc. The account allows savers to make three withdrawals during the term, each one up to 10pc of the balance.

Account holders would earn £612 over the two years with the Isa.

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More: Best cash Isa 'Nisa' rates

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