Fixed-term savings accounts are rising – here’s why and the best ones for your money
Fixed-term savings rates are on the rise again as banks and building societies compete more aggressively for deposits.
After a period when rates began to fall, some providers are now offering fixed deals at higher rates, particularly for one- and two-year periods.
For savers looking to lock up money, this can present an opportunity to earn a guaranteed return.
But fixed accounts aren’t right for everyone, and timing is important.
Why are fixed savings rates increasing?
Fixed-term savings rates are influenced by swap rates, which are a measure of where financial markets expect interest rates to go in the future.
In recent weeks, these expectations have shifted upward; This means banks can offer better rates on fixed products while maintaining margins.
At the same time, competition for savings deposits remains strong. Many providers rely on customer savings to fund loans; so even small changes in market expectations can translate into better deals.
Seasonal factors also play a role. As the end of the tax year approaches, demand for ISAs often increases, encouraging providers to increase their rates to attract inflows. The result was a modest but noticeable increase in some fixed-term offers.
When it makes sense to trim your savings
If you’re confident you won’t need access to your money for a certain period of time, fixed-term accounts can be a good option.
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Capital is at risk.
Terms and conditions apply.
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They offer certainty (you know exactly what interest rate you’ll get), which can be attractive at a time when the direction of future interest rates is uncertain.
It’s also particularly useful for savers who already have an emergency fund in easy-to-access savings, want to lock in a competitive rate before any potential cuts, or are saving for a specific goal within a certain time frame.
But anchoring is always a trade-off.
Disadvantages to consider
The main disadvantage of fixed-term savings is the lack of flexibility.
There is a risk of mis-timing: While rates are rising slightly, it could be Move even higher, especially if inflation persists or central banks delay lowering interest rates. If rates continue to rise, you may face a lower return than what new accounts offer.
If your circumstances change, early access to your money may be difficult or result in penalties.
Most accounts either do not allow withdrawals at all or charge interest penalties for early access. This makes them unsuitable for money you may need on short notice.
Longer-term fixes require even more attention. While accounts with terms of three years or longer are available, tying up money for that long can limit your options. For some savers, longer-term investing may be more appropriate, depending on their goals and risk appetite.
Finally, as with all savings, it is important to check whether your provider is covered by the Financial Services Compensation Scheme (FSCS), which provides protection for up to £120,000 per person and organisation. ISA allowances are £20,000 per year for all types and accounts combined.
Non-ISA accounts often offer slightly higher rates, but ISAs may be more attractive to higher-rate taxpayers who would otherwise pay tax on savings interest.
The best fixed-term savings accounts right now
Rates change frequently but the accounts below are among the most competitive currently available, both in cash ISAs and standard fixed-term savings accounts. The deals are correct at the time of writing, but always check if the account terms suit your needs. Interest rates are all AER for easy comparison and not ISA unless stated.
One year fixed rates
15-18 months fixed rates
Two-year fixed rates
Savers should check minimum deposit requirements and whether interest is paid monthly or annually; as this may vary between providers.
Should you fix it now?
Whether now is a good time to fix depends largely on your personal circumstances. For those with spare cash they don’t expect to need, current rates offer the chance to earn a guaranteed return in an uncertain environment.
For others, providing some flexibility or waiting to see how rates move may be a better option.
As always with savings, the right approach is rarely all or nothing; Even if you split your money, keeping some in easy-to-access accounts while keeping the rest fixed in a way that precisely balances flexibility.
When investing, your capital is at risk and you may get back less than you invested. Past performance does not guarantee future results.
