Welcome to our guide to fixed-rate savings accounts; an ideal solution for business and personal savers looking for stability and predictable returns on their investments.
This guide covers the essentials relating to fixed-rate savings accounts, from how they function and the unique benefits they provide to some of the considerations you might weigh before committing to one. We’ll explore practical scenarios where a fixed-rate account might be beneficial for your saving strategy. Whether planning for a specific financial goal or simply looking to maximise your savings, this guide may help you navigate the world of fixed-rate savings with confidence.
What is a fixed-rate savings account?
A fixed-rate savings account is an account that offers a fixed interest rate for a predetermined period. Unlike with an easy access savings account, you normally can’t withdraw from a fixed-rate account whenever you like. Instead, you must leave your money in the account for the agreed term.
How do fixed-rate savings accounts work?
Fixed-rate accounts often require an initial lump-sum deposit, usually within a set time period from opening the account. Interest on that initial deposit is usually calculated daily and often you can choose whether this is paid monthly or annually. When your account reaches maturity, which is at the end of your term, you’ll often be given the option of reinvesting your savings into another fixed-rate account, transferring to another savings account, or withdrawing your funds.
In return for this commitment, you’ll usually receive a fixed interest rate, which remains unchanged for the term of the notice period, regardless of market fluctuations. This provides you with the security of knowing exactly how much interest you will earn over an agreed time.
Depositing money into your Recognise Bank fixed rate account is straightforward. You can transfer funds through your banking app, website, or over the phone of your Nominated UK Bank Account.
Recognise Bank’s Fixed Rate accounts
How do you withdraw money from a fixed rate savings account?
Withdrawals from a fixed-rate savings account aren’t as simple as with an easy access account. This is because, when you open a fixed-rate account, you agree not to lock in your money for the duration of the term of that account, in exchange for earning a fixed interest rate for that period.
In some cases, banks may allow you to withdraw money for exceptional circumstances before the term ends. However, this waiver may come with conditions and/or penalties, and it depends on the Terms and Conditions of your account.
How long could the fixed period be?
The duration of the fixed period, or ‘term’, can vary widely depending on the bank and the specific account you choose. The most common term lengths are one, two, three and five years, but can range anywhere from six months to 10 years. Longer term accounts typically offer the higher interest rates, but this is dependent on the interest rate environment, so savers must decide how long they are willing to lock their funds away for.
How do interest rates on fixed savings accounts differ from other savings accounts?
A fixed rate savings account requires an agreement to keep money deposited in that account until the end of that term. Banks will tend to offer a higher-than-average rate of interest on that account, compared with other savings accounts, as an incentive. However, businesses and individuals should consider the current base rate environment and their individual needs when opening their account, to determine what rate and term is right for them.
In return, your bank will also agree not to change that rate of interest throughout the term. This is different from interest rates on variable rate savings accounts, which can vary whilst your money is in the account. It’s therefore possible to calculate the full amount of interest you’ll receive well in advance.
Key benefits of fixed-rate savings accounts
- Guaranteed interest rate: Fixed-rate accounts offer a guaranteed, often higher-than-average, interest rate for the term of the product.
- Savings discipline: By locking funds away, fixed-rate accounts help savers resist the temptation of dipping into their savings for non-essential expenses.
- Financial planning: Savers can accurately forecast interest amounts for the duration of their fixed term, making for effective financial planning and long-term returns.
Considerations when opening a fixed-rate savings account
- Limited access to funds: A common drawback is that savers can’t access funds in a fixed-rate and term account.
- Fixed interest rate risks: While a fixed interest rate can be beneficial if market rates drop, it could also see savers locked into lower rates if interest rates rise during their fixed term.
- Inflation impact: If you don’t choose your fixed-term account wisely, there’s some risk that inflation will outpace your locked-in interest rate. If this happened, it would diminish the value of your savings over the term.
How can a fixed-rate savings account work for you?
You have long-term financial goals
Fixed-rate savings accounts are beneficial for anyone with long-term financial goals that they’ve already saved for but don’t intend to pursue in the near term.
You can commit funds for a set period
A fixed-rate account could be a valuable investment if you do not need access to your savings for a set period.
You’re looking to maximise interest on idle funds
A fixed-rate account can prevent idle savings from sitting in a low-interest account. Instead, this type of account can enhance your interest earnings.
Are fixed-rate savings accounts good for businesses?
Like individuals, businesses with excess money in the bank could benefit from using a fixed-rate savings account. These types of accounts can enable savers to receive a higher rate of return*, on reserves that they do not intend to touch in the medium to long term.
Businesses may choose to utilise fixed rate accounts alongside other types of savings’ accounts, as part of their broader financial planning and liquidity management strategies. Please note that it is important to conduct your own research based on your individual business needs, as requirements can vary.
The most commonly asked questions about fixed rate savings accounts
Can you have more than one fixed rate savings account?
Yes. It’s possible to have more than one fixed-rate savings account, with the same or several providers, even if the terms of each account are different.
Can you close a fixed rate savings account early?
Not usually. Closing a fixed-rate savings account early, if allowed by your provider, may result in penalties and may only be considered in exceptional circumstances, including the loss of some/all of the interest earned to date.
What happens when the fixed term ends?
When the fixed term of your account comes to an end, it reaches what is known as ‘maturity’. Your bank should be in touch with you before the end of the term, outlining your available options. These options typically include renewing your account for another term, transferring to a different savings account, or withdrawing your money.
Can I add more money to my fixed rate savings account?
Not usually. Fixed rate accounts usually require funding within a specified window post account opening, meaning that you are unable to put more money in, or take money out after this initial depositing period.
Do fixed savings accounts have a minimum deposit requirement?
Most fixed savings accounts will have a minimum deposit requirement. At Recognise Bank, we require a minimum deposit of £1,000 on our fixed-rate savings accounts.
Are there any fees associated with fixed rate savings accounts?
Not usually. There are not normally additional fees associated with fixed rate savings accounts unless you choose to end an agreed term early where the conditions will be specified by your provider and the account’s Terms and Conditions.
*depending on current market conditions.
Important information
This content is provided for information only and should not be treated as tailored financial advice for you. Please speak to an independent financial adviser or other financial professional before taking any decisions based on the information provided in this blog. You are responsible for your own financial decisions and neither the author nor Recognise Bank will be responsible for any losses, of whatever kind, that you might suffer as a result of you relying on this post.
