Sponsored by Raisin UK
Savers often want to know that their returns will remain the same for a set period of time, regardless of what happens to interest rates. However, knowing how long to fix your savings for isn’t always easy.
As the name suggests, fixed rate savings accounts, sometimes known as savings bonds, pay a fixed rate of interest, with terms typically ranging from three months right up to five years. Typically, you can’t access your savings during the account term without incurring a penalty, so it’s important to think carefully about when you’ll need your savings.
Here, we look at some of the things you need to know when deciding how long to fix your savings for, and how savings marketplace Raisin UK can help you find the best fixed rate savings accounts.
What are your savings goals?
When working out how long to fix your savings for, you’ll first need to consider what your savings goals are and when you’re likely to need access to your money. For example, if you’re saving towards a winter break next year, you’ll probably need a maximum term of a year, or perhaps an even shorter six or nine-month fixed term bond, so that you can withdraw your savings in time to pay for your break.
If, however, you’ve got a slightly longer-term goal, then you may be comfortable tying up your money for longer. Perhaps you’re planning to make home improvements in three or four years’ time, for example.
What do you think is likely to happen to interest rates?
Another factor to consider is whether you think interest rates are likely to continue falling over the next few months or years, or stay higher for longer.
Last August, the Bank of England’s Monetary Policy Committee voted by the narrowest of margins to reduce the base rate by a quarter of a percentage point, from 5.25% to 5%, following months of consecutive increases. The base rate was then reduced again to 4.75% in November 2024, with three further quarter-point cuts following in February, May and August this year. However, with inflation holding steady at 3.8% in the 12 months to August, some commentators claim that we may not see any further rate reductions until early next year.
With no certainty as to exactly when or by how much the base rate might reduce again, you may decide you want to take advantage of current rates now and lock in for the long term.
Of course, if you think that interest rates are likely to remain higher for longer, then you might be more comfortable locking in for a short-term period. That way, if rates do remain high, you should be able to secure another fixed term account at a competitive rate when your current term finishes.
Pros and cons of shorter-term fixed rate savings
It used to be the case that the longer you were prepared to tie your money up for, the higher the interest rates you’d be offered. However, as mentioned, with many commentators anticipating that interest rates will continue to ease over the next couple of years, the highest returns currently can be found on shorter-term fixed rate accounts rather than those offering longer terms.
However, opting for a short-term bond means that you’ll have to move your money more frequently to take advantage of competitive rates. There’s also a risk that if interest rates fall substantially over the next few months, you might have missed out on better longer-term fixed rate opportunities that are available now.
Pros and cons of fixing your savings for longer
Although longer-term fixed rate accounts currently pay lower returns than shorter-term accounts, if interest rates continue to fall, then if you do go for a five-year account, in a couple of years’ time you may find you’ve actually locked into a really competitive deal.
However, if you’re considering a long-term fixed rate account, it’s important to think about whether you’re likely to need access to your money. If you suddenly need it, you’re likely to face a chunky penalty to take your money out. If you don’t think you can tie your money up for so long, you might want to consider a savings bond with a shorter term, say one or two years.
Where can you find the best fixed rate savings accounts?
Raisin UK offers a competitive marketplace for savings, enabling you to choose from a wide selection of high-interest-paying fixed rate savings accounts from 40 banks and building societies. These include challenger banks and those not found on the high street.
Once you’ve compared fixed rate savings accounts and found the right account or accounts to suit your needs, you simply sign up to Raisin UK via its website or app, and apply to open. Raisin UK’s partner banks currently include Charter Savings Bank, Investec, Kroo Bank, OakNorth Bank, RCI Bank, and SmartSave, among others.
All the banks that Raisin UK works with are protected by the Financial Services Compensation Scheme (FSCS), or the European equivalent scheme.
The FSCS is the UK’s financial compensation service that steps in when financial institutions fail and are unable to pay customers’ claims. It’s worth noting that you will only be covered for £85,000 of savings held with a single institution, so make sure you don’t have savings in more than one account with the same bank, or accounts with two different banks that are owned by the same institution which together exceed this limit.
Top 5 Fixed Rate Accounts
A final thought…
If you’re not certain exactly how long you want to fix your savings for, remember that you’re not restricted to just one account. You might decide, for example, to save into several different fixed rate savings accounts, opting for a shorter-term account for any savings you’re likely to need imminently, and a longer-term account for savings you plan to use to meet any future objectives.
With a savings marketplace such as Raisin UK, you can apply to open as many accounts as you like, and manage everything under one roof.