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Fixed rate savings take a tumble

High savings rates have been a by-product of the credit crunch, as providers source deposits as an alternative option to raising funds on the money markets. Competition is still alive, with savings account rates almost 1% more than Bank of England base rate in the variable rate savings account market, and as much as 1.35% within the fixed rate savings account market.

The fixed rate savings account market has seen many ups and downs over the last quarter of 2007, peaking in September and December for very short periods of time at 7%. However the last few weeks have seen the savings account market take its latest downturn, with six savings account providers reducing savings rates by as much as 0.81%. Typically the deals hit have been savings bonds of one year or less.

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While the overall savings account market is falling, with several savings account deals dipping below 6%, there are a handful of exceptional savings account rates still available. But savers may need to act sooner rather than later if they want to nab themselves one of the high savings account rates still left.

If base rate does continue to fall throughout 2008, investors in fixed rate savings bonds could see their savings working extra hard for them, compared with the variable savings rates which will inevitably fall, especially when the top paying fixed savings rates are already higher than any variable savings rate found today.

But before jumping head first into a savings bond, make sure you know the full terms of the savings account. While some savings bonds will permit access, for most you will be sacrificing access for the whole term of the deal. Always make sure you have a safety net of savings which is accessible, otherwise breaking into a savings bond could see your hard earned return disappear and you left looking for a new home for your savings as the bond closes early.

Savers who have seen their variable savings rates cut by as much as 0.55% over the last few months could see the piece of mind that a fixed rate savings deal offers as a very attractive option.

The best savings portfolio will spread risk and access to achieve a workable yet rewarding savings pot, and should always include making the most of any tax free savings such as ISAs.

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