High demand for short-term savings deals is leading banks to remove some of their best offers and replace them with accounts that pay lower rates.

Large high street banks, including Barclays, Northern Rock, Santander and Lloyds, have all removed or replaced accounts in the past two weeks.

“There seems to be a trend from providers at the moment for withdrawing their bonds,” said Louise Holmes at financial researcher Moneyfacts.

“These deals, particularly fixed-rate bonds, are very competitive and many have a short shelf-life so savers need to act fast to take advantage of them.”

Nationwide, for example, has cut the rate on its three year bond from 3.65 per cent to 3.25 per cent. Santander has removed its one year bond paying 4.15 per cent altogether.

The number of two-year fixed rate accounts available has fallen from 74 to 71 in the last three months.

But competition remains strong among providers that are still using customer deposits as a source of funding, rather than the money markets – although these providers are increasingly demanding that savers lock their deposits away for an extended period of time.

Moneyfacts research shows that most of the best new rates now come from small providers offering longer-term accounts.

KRBS, the rebranded Kent Reliance Building Society, now has the best five-year bond available on the market, paying 5 per cent.

AA will pay 4.6 per cent on its five-year bond.

However, comparison websites say that the new raft of accounts may still not be enough to encourage savers to tie their money up for any period longer than two years. Average rates paid to savers have been fluctuating over the past two years, as banks’ need for deposits has varied depending on the outlook for the economy.

Inflation is another possible deterrent for savers. Right now, the average five-year bond pays out 4.2 per cent – one percentage point lower than the current rate of inflation. So, not only do savers run the risk of losing money in real terms if they invest in the bonds, they are also taking a gamble on where interest rates will move over the time period.

While analysts and markets currently appear to concur that the Bank of England will not raise its base interest rate until 2012, some believe that the base rate could rise to 5 per cent or more between now and 2016 – leaving returns on today’s five-year bonds looking uncompetitive.

By comparison, rates for one-year bonds have risen on average from 2.61 per cent at the beginning of the year to 2.88 per cent now. Banks appear to know that savers are looking for the best short-term deals and have been setting their rates accordingly.

With future economic growth more uncertain, the outlook for inflation and interest rates is also harder for savers to gauge. Locking money away for a year in exchange for slightly more interest than that available at easy access accounts therefore appears the most popular option.

Given the competitive nature of the savings market right now, a new crop of higher-paying accounts could yet emerge, according to Moneyfacts. Savers should keep their eyes peeled for a rash of new competitive short-term bonds launched over the coming weeks, said Holmes.

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