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Fixed rate savings accounts: a simple guide

Fixed rate savings accounts: a simple guide

If you’re setting aside money for a special occasion, or just want a guaranteed interest rate, a fixed rate savings account might be the answer. The main drawback is that you won’t have easy access to your money – but if that’s okay with you, read more here and find a fixed rate savings account that suits you.

Anelda Knoesen
From the Money team
minute read
posted 18 NOVEMBER 2019

What is a fixed rate savings account?

Fixed rate savings accounts are sometimes also called fixed term accounts or fixed term bonds. As the names suggest, they’re accounts that give you a fixed rate of interest over a fixed period of time (the term). In order to get that level of interest, you have to keep your money in the account and not touch it for that fixed period.

Because you’ve agreed to lock in your money, the interest rates you get in a fixed rate savings account tend to be slightly higher than you’d usually get in an easy access savings account.

Who are fixed rate savings accounts aimed at?

They’re aimed at people who are able to lock their savings away without needing quick access to their funds. They’re ideal if you’re setting money aside for a specific use – for example, to pay for a wedding or holiday. You can choose a term from a provider to suit you so that the money will be available when you need it. Some fixed rate accounts might offer one or two-year terms, while others offer a range of terms that are as short as just a few months.

What are the pros and cons of fixed rate savings accounts?

These are the key advantages of fixed rate savings accounts:

  • higher interest than you get with most instant access accounts
  • a guaranteed rate – making it less risky than investing in the stock market or in an account with a variable interest rate
  • easy forward planning – you know exactly how much you’ll get at the end of the term

And the main drawbacks of fixed rate savings accounts:

  • You can’t access your money if you need it before the end of the fixed term – or if you can, there could be a hefty penalty to pay
  • You might miss out on higher rates if the Bank of England base rate goes up during the term and interest rates on savings accounts that aren’t fixed (variable or instant access for example) are raised in line with this

What should you look for in a fixed rate savings account?

The first thing to do when you compare fixed rate savings accounts is find the right balance between interest rate and term length. Usually, if you’re willing to leave your money for a longer term, you’ll get a higher rate of interest on your fixed term savings. But make sure you won’t need the money during the term, or you could lose out. Pick the balance that’s right for you.

Another factor is account management, if you have a particular preference for online or in-branch access – though this is less important with fixed term savings than it is with instant access accounts. You won’t need to do much management until the end of the term. 

Some fixed rate accounts will also specify a minimum or maximum deposit – so if you want a place to store a large amount of money, you need to be aware of that. Though if you put more than £85,000 in a single bank or building society, then any money over the limit won’t be protected by the Financial Services Compensation Scheme (FSCS) or its equivalent for some EU-registered banks if the bank or building society goes bust. 

You need to be careful as the amount is set per financial institution and some financial groups might count as one – for example Lloyds, Halifax and Bank of Scotland count as one institution, as do HSBC and First Direct whereas RBS and NatWest count as two.

If you choose to save using a foreign-owned bank, you should make sure you understand how your money is kept safe. For example, Santander is Spanish owned but is UK regulated so is part of the FSCS. Other European banks, such as RCI Bank and Fidor Bank, may protect you under what’s known as the passport scheme, where your money is protected under the bank's home country's protection scheme. This, of course, may change after Brexit.  

Other international banks owned outside the EU have to be part of the UK scheme to operate here.

What other accounts are there to consider?

You could also think about:

  • Cash ISAs and Fixed Rate ISAs for tax-free savings interest
  • Help to Buy ISAs – that offer people saving to buy their first home a government bonus up to £3,000
  • Lifetime ISAs if you’re saving for retirement or your first home
  • Junior ISAs if you’re saving for your child’s future

Compare fixed rate savings accounts

Looking for a fixed rate savings account? At Compare the Market, we put details of a wide range of accounts in one place to help you compare providers and find the ideal home for your money.

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