Fixed rates fall but discounts still hold sway

Fixed-rate mortgages, which have been rather expensive recently, may start to look more attractive in the coming weeks. This is because swap rates, which determine what lenders charge for their fixed deals, have come down since the beginning of the month.

Fixed-rate mortgages, which have been rather expensive recently, may start to look more attractive in the coming weeks. This is because swap rates, which determine what lenders charge for their fixed deals, have come down since the beginning of the month.

But these lower fixed rates are unlikely to give discounted deals a run for their money, argues David Bitner, the head of product operations for broker The MarketPlace at Bradford & Bingley. "The products are still likely to lag behind their variable counterparts, so we would not expect to see the preference for variable products decline that significantly," he says.

For example, the best two-year discount currently available is West Bromwich's 3.7 per cent deal, compared with 4.42 per cent fixed for two years with Chelsea building society. The latter also has a large fee of £640, so its rate would have to fall considerably to make it good value against the discount.

In the world of savings, meanwhile, Birmingham Midshires last week launched the most competitive deal currently available on balances of £1,000. For the first nine months, savers will earn a variable rate of 4.8 per cent gross interest when they invest at least £1,000 in the bank's Telephone Extra account.

Savers are allowed to make three penalty- or notice-free withdrawals of a minimum of £500 during the first 12 months, and the account will be operated entirely by telephone.

However, this deal is not as great as it first seems. After nine months, the rate reverts to 4 per cent for the next three months. Once this period ends, interest is paid at the same rate as that available to customers in the bank's Telephone Easy Access account. And this is hardly likely to make it on to the "best buy" tables, as it currently pays a disappointing 1.7 per cent on balances of £1,000.

Unless you are prepared to switch your savings after nine months to an account paying a more competitive rate of interest, you would be better off opting for one that offers consistently good interest. ING Direct is paying 4.5 per cent on balances of £1, with no notice required on withdrawals at any time.

What's more, interest is paid monthly, whereas accounts offering higher rates of interest usually pay this annually.