With interest rates at an all-time low, saving money has never been less lucrative. One way that you can boost your savings is with a fixed rate saving account; however to do this you must be prepared to put your money away and forget about it for a while.
Normal savings accounts fluctuate with the Bank of England base rate. If the base rate goes up, the savings interest rate goes up and vice-versa. Fixed rate savings accounts are often advertised with rates that are way above normal savings accounts, and significantly higher than the Bank of England base rate. In return, the banks require you to deposit your money for a fixed term, typically two, three or four years, with financial penalties if you withdraw before then.
So the advantages are clear, if you have money to save over a long period, fixed rate savings are for you. But what are the disadvantages?
The main disadvantage is that there is always the possibility that the base rate will rise, and with it the rate on normal savings accounts. Where once your fixed rate may have been profitable, it can seem the very opposite when compared with the other deals in a rising market. Another disadvantage is that no matter how long you have saved for, if you need to withdraw your money early, you can lose all of the interest that has been accrued.
So where can you find the best fixed savings rates? And what is typical? At the time of writing, the Bank of England base rate is 0.5%. Banks look to keep their fixed rates at around 3% above the base rate so you should be looking at roughly 3.5%. If the Bank of England raises the rate to 1%, then you should be looking for at least 4% and so on. The rate is reviewed once a month so keep an eye on it.
Currently, the best rates are with the Secure Trust Bank. They offer 4.21% on four year fixed term and 4.01% on a three year term. For shorter term saving, the AA are offering 3.8% whereas the Co-Operative and Britannia win out in the high street wars by both advertising 3.5% for a one year fixed rate.
Some banks tempt you in with an attractive sounding rate and then try and change it as you sign up. Be vigilant and stand your ground. Be prepared to walk away if they don’t offer you the rate advertised and do not deposit a penny unless you are absolutely happy.