Best fixed rate savings: what should you compare before you fix?

Choosing the best fixed rate savings account for you is a combination of matching the most attractive interest rate with a term length that best suits your future financial plans. Before you choose a fixed-rate bond, consider when you’ll next need your money and use this to forecast which term length best suits you. Weigh up the available interest rates, keeping in mind that if you choose a very long-term term, market rates could eventually rise above what you initially locked in.

How does a fixed-rate bond work?

A fixed-rate bond is a savings account that locks your money away for an agreed period of time with a guaranteed consistent interest rate for that fixed duration. These accounts are often limited to a single lump sum deposit, rather than free access to deposit any amount at your convenience like easy access savings accounts. Fixed-rate bonds also limit withdrawals of your funds until the end of their fixed term, known as ‘bond maturity’.

What should you compare before you fix?

Before you fix, compare the available lengths of each bond. These can span anywhere from 6 months to 5 years. A longer fixed-rate bond will usually offer the benefit of a higher interest rate. However, you should consider when you’ll next need these savings before locking in for a long time. There is also no guarantee that general market interest rates won’t increase during the length of your term, potentially leaving you locked in for a long period with a below-optimal savings rate.

Alongside the length of the term, assess the interest rates. If you multiply the AER (Annual Equivalent Rate) of a potential account by its term length, you’ll be able to calculate the total yield and directly compare how much overall interest each account would earn by the time the bond matures.

What happens to access during the fixed term?

Most fixed bonds are limited by access restrictions, meaning you can’t withdraw your funds once their fixed term has started. Some accounts will allow access to your funds during their term, however, any withdrawals are often penalised with interest charges. In rare cases, extreme changes in personal circumstances such as involuntary redundancy can also facilitate gaining access to your funds before the end of the fixed term.

What limits and restrictions should you consider before fixing?

Fixed-term savings accounts usually have higher minimum deposit limits than easy access savings accounts, frequently ranging anywhere from £500 to £5,000. Often, the accounts with the most competitive interest rates will be tied to higher minimum deposit levels.

Keep in mind again that most of these accounts will also only accept a single lump sum deposit, so it’s worth having a sizable amount saved before paying in.

The last key consideration is your FSCS limit, which protects savings of up to £120,000 per banking provider. If you’re planning to save an amount exceeding this limit, it may be worth exploring other providers’ products and splitting your funds to guarantee they’re fully protected for the duration of the fixed term.

A practical decision checklist

So, before you fix, consider the following:

• All potential lengths of each fixed term, often ranging from 6 months to 5 years, to see which best fits your future financial plans.
• The available interest rates, using AER calculations alongside the length of each related term to see how much interest you’d generate once your bond reaches maturity.
• Understanding that once your fixed term locks in, you’ll likely not be able to withdraw your funds again until bond maturity without paying an interest penalty.
• Are you planning to save more than the £120,000 FSCS protected limit? If so, weigh up whether splitting your savings across multiple products would be worth exploring to protect all your funds.

Frequently asked questions

Is term length or interest rate more important?

Choosing the right bond for you is about balancing both, rather than focusing on one or the other. Before you fix, compare which length of time best suits your future financial needs while also aiming to choose the most competitive savings rate to ensure strong earnings from interest.

What are the risks of locking in a fixed-rate bond for a long time?

Firstly, it’s worth trying to ensure you’ll not need your funds for the duration of the bond. If you need to withdraw any money for emergency purposes, you may suffer an interest penalty. The other risk of locking in a long-term bond is that market interest rates could potentially rise above the level you’ve locked in, meaning your savings will be tied to a less-than-optimal savings rate until bond maturity.

What if I need to access my money before a fixed term is over?

There’s no guarantee a provider will allow you to access your funds before the end of the agreed term. If you want to withdraw funds before the bond matures and it’s approved by your provider, be aware that they may charge a financial penalty on your interest as a trade-off.

How much can I deposit into a fixed-rate bond?

Fixed-rate bonds are generally governed by higher-than-average minimum deposit limits, of anywhere from £500 to £5,000. Be aware that these bonds generally also only allow a single lump sum deposit, rather than giving you the option to freely build up a savings pot with flexible payments.

Next steps

If you’re reviewing how to choose the best fixed rate account for your savings, these Charter Savings Bank pages may help you explore your options:

View Fixed Rate Bonds

View the interest rate summary

Savings products at a glance