A simples guide

Fixed rate savings accounts

We should all save for a rainy day – we know we should, but sometimes choosing the right account to save your money in can be difficult.

There are just so many to choose from, each with their own benefits and drawbacks – so where to start? To get the ball rolling, here’s our guide to fixed rate savings accounts.


What is a fixed rate savings account?

As its name suggests, they’re accounts that give you a fixed rate of interest over an agreed period of time. However, in order to get that level of interest you have to keep your money in the account and not touch it for the length of 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.

When you choose a fixed rate account, you’ll need to look at the Annual Equivalent Rate or AER as it’s shortened to. The AER is the interest rate that the account pays and it’s a good way of comparing accounts from different banks or building societies.

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More about fixed rate savings accounts?

Another factor you’ll probably want to consider when you compare fixed rate savings accounts is account management. Check whether there are any restrictions to how you access or communicate with your bank or building society. Some accounts can only be managed or opened online, if you don’t have ready internet access, that’s probably not that helpful.

Some fixed rate accounts will also specify a minimum or maximum deposit so you should also check that too. But be wary of putting all your eggs in one basket though, there’s a limit to how much of your money is protected in a UK bank or building society and that limit is £75,000. So, if you have more than £75,000 in savings that you want to tuck away (well done you) then you might want to think about spreading the wealth. The last thing you want to happen to your hard earned savings, is for it all to be lost if your bank or building society goes bust.

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’ll also appeal if you want a higher rate of interest that isn’t available in an instant access account and you don’t want to risk investing in the stock market.

So what are the advantages of a fixed rate account?

Well the main advantage is that your interest rate is guaranteed. There’s no fluctuating or variation, what you’ve agreed, is what you’ll get. It’s a safe method of stashing your cash as long as you don’t forget the £75,000 rule.

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But what are the drawbacks of a fixed rate account?

The main drawback is that your money’s stuck in time. Think of a fixed rate savings account as a time capsule, destined never to see the light of any other interest rate for as long as it’s locked in. On the one hand, you’re enjoying consistency but on the other you run the risk of missing out on higher rates that might be available if the base rate does increase  

Also, what happens if you really need that cash? The whole point of a fixed rate account is that you can’t access it. There may be some very exceptional cases where your bank or building society may let you. But there could be hefty penalties which could end up being more than the interest you made.

Anything else I should consider?

Think about your needs and what’s best; fixed rate savings accounts offer you security and a guaranteed level of interest which is usually paid monthly or annually depending on the account. But if you don’t want to commit to locking your savings away then you might need to consider an alternative.

Your idea of what makes a top fixed rate savings account might be quite different from someone else’s, so it’s worth comparing the market to see just what’s out there. You might be surprised to find one that meets your expectations.