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Fixed-Rate Savings

Lock in at 2.5% for three years

Fixed savings In October 2008, the UK base rate was 5%. By March 2009, it had slumped to a historic low of 0.5% (where it remains), slicing saving rates massively.

One way to boost your rate is to 'fix' your savings. But be prepared to lock your cash away, without access to it.

10 fixed-rate savings need-to-knows

Fixed-rate savings can be a great financial choice, but read our need-to-knows first to check if they're right for you before you get yourself a deal.

  • Fixed-rate savings are savings accounts where you lock cash away

    Fixed-rate savings give a guaranteed rate for a set period, and the best buy fixed-rate deals are usually better than the best buy easy-access rates.

    The big catch is you can't take your money out during that time, and you won't benefit if other rates rise in that period. Therefore, they're only suitable for those who are happy to lock cash away for the entire term.

  • Unlike easy-access accounts, the rate you get is guaranteed

    Most easy-access savings accounts are variable, meaning the rate can change both with the Bank of England's base rate and at providers' whims. With these accounts, it's important to regularly monitor the interest rate and be ready to ditch and switch.

    But with fixed-rate savings, the rate you get is guaranteed to be the same for the entire term you invest for. So if an account pays you 2.5% AER for three years, you know that's the rate you'll get until the account matures in three years' time.

  • The longer you lock cash away, the more you risk rates rising

    It's important to understand the longer you fix for, the more you are RISKING that other savings rates could be rising, meaning this could become a bad choice. If interest rates were to increase rapidly, you would have lost the flexibility to ditch and switch to a new account that now pays more than your fixed-rate account does.

    The table below shows the top fixed rates for terms of one to seven years. The Bank of England base rate is just 0.5% – it's unlikely to get lower, but talk is that the rate will start to rise again at the end of 2015. So it may be best to err on the side of caution and head for a shorter fix, so that if rates do rise, you won't be losing out for so long.

    Quick questions

    Is now the right time to 'fix' savings?

    Will I ever be able to access my cash if it's in a fixed-rate account?

  • If you have debts, pay those off first before fixing your savings

    If the interest cost of your debt is more than you'd earn on savings (after tax is deducted) you're better off paying down the debt. If you've £1,000 on a credit card at 20% it costs £200 a year, assuming a constant balance. In savings at 2%, after tax you'd earn £20 a year so you'd be £180 a year better off repaying the card instead of saving that cash. Much more info in Should I Repay Debts With Savings?, including why you don't need an emergency fund.

    What about my mortgage? Should I overpay that?

  • Have you used your ISA allowance? Try a fixed-rate cash ISA...

    A cash ISA is simply a savings account where you don't pay tax on the interest. Anyone aged 16 or over can put up to £15,240 into their cash ISA during the current tax year, with the threshold rising each April in line with inflation.

    So the first place for taxpayers to put a lump sum is often in an ISA, as you're likely to earn a bigger return than a standard account as the interest is tax-free. Plus, just like normal savings accounts, you can also get fixed-rate ISAs, where you lock cash away in return for a boosted rate. See the Fixed-rate cash ISAs for full info and top rates.

    Quick question

    Can I access my cash if it's in a fixed-rate ISA?

  • You could get higher rates putting (some of) your cash elsewhere

    Fixed-rate savings boost returns from easy-access accounts, so often they're the natural thought if you've got cash and you don't need to access it. But, there are several different ways to 'save' that you should consider first. These include cash ISAs, high-interest bank accounts, Pensioner Bonds (if you're 65+) and paying off debts. Full info in the Savings Fountain guide.

    Quick questions

    Are you willing to switch bank accounts to get up to 5% interest?

    I've heard about Pensioner Bonds, and I'm old enough. Are they any good?

    Can you put money aside each month? Consider a regular savings account...

  • Fixed-rate savings can be used to provide a monthly income

    With fixed-rate savings, you won't usually get paid monthly interest. So many who rely on savings interest as income don't fix savings, even though they pay higher rates. Yet there's a workaround, where you keep some cash and use that as 'interest'. If we ignore tax for ease of explanation, an example should illustrate how this works:

    You've £100,000 and can get 2% in a year-long fixed-rate account and 1.5% in an easy-access account. You'd like roughly £2,000 of interest.

    Put £98,000 in the fixed-rate account, and £2,000 in the easy access. Spend the £2,000 over the year and the £1,960 earned in the fixed-rate account almost makes up for it. Then you're effectively getting the higher rate and spending the interest.

    This way you can grab the higher interest, but retain access to some cash.

  • Up to £85,000 in savings per person is safe in UK-regulated accounts

    Ten years ago, we wouldn’t have had to stress this so clearly. No bank had collapsed in 100 years, but then the credit crunch happened. After the calamities that hit Northern Rock, RBS, the Lloyds group, Bradford & Bingley, Icesave and Kaupthing, every sensible saver should ask: "Is my money safe?"

    If your money's in a UK-regulated bank or building society, it's protected under the Financial Services Compensation Scheme (FSCS) for up to £85,000 per person per institution. What this means is if you have £85,000+ with one banking group (eg, with Halifax, Bank of Scotland, AA Savings or Saga), any cash saved above the limit wouldn't be protected. Full info in Are My Savings Safe?

    Quick questions

    What counts as UK-regulated?

    How can I maximise safety if I have more than £85,000 to save?

  • You pay tax at the same rate on fixed-rate savings as on your income

    Unless your combined earnings and savings interest are under £15,600 (it's higher for over-77s, see the Income Tax Checker), you'll pay tax on your savings interest (apart from cash ISAs and a limited number of other products). If your income (including interest) is under this figure, you can register to get paid interest tax free. Read our briefing on tax-free savings to find if you're eligible.

    If you do need to pay tax on savings interest, note that interest rates in this guide are usually quoted before tax, so basic-rate taxpayers need to take 20% off the rate, for higher-rate taxpayers it's 40% and for additional-rate taxpayers 45%.

    Quick question

    Is there a way I can pay less tax on my savings interest?

  • If you're willing to up the risk, consider putting cash in peer-to-peer savings

    Also known as crowd-lending, peer-to-peer savings sites are industrial-scale online financial matchmakers getting borrowers and savers together. As the banking middleman is bypassed, borrowers often get slightly lower rates, while savers get improved rates, with the sites themselves profiting via a fee.

    Peer-to-peer looks like saving, tastes like saving, but as there’s no safety guarantee, it smells like an investment. If it appeals to you, you're debt-free, willing to up the risk and put money away for a longer term, then the best way is to start by dipping a toe in the water rather than going the whole hog. For full information read the peer-to-peer savings guide.

Best buys: Top fixed-rate savings

If you've decided fixed-rate savings are right for you, then the table below details the top two payers for each savings term from one to seven years. We've listed minimum and maximum savings levels, how you open the account, and whether the savings institution has full or shared £85,000 FSCS protection.

WARNING! The rate on application should apply, yet banks are changing savings rates all the time. So always double-check the rate yourself before applying.

The best one-year fixed rates

Product Length of fix Rate(AER) Min/Max Deposit How to Open FSCS Protection
United Trust BankUnited Trust Bank 1 year 2.05% £500/£500,000 Online/post Full
Vanquis BankVanquis Bank 1 year 2.01% £1,000/£250,000 Online Full

The best two-year fixed rates

Product Length of fix Rate(AER) Min/Max Deposit How to Open FSCS Protection
Vanquis BankVanquis Bank 2 years 2.26% £1,000/£250,000 Online Full
Secure Trust BankSecure Trust Bank 2 years 2.21% £1,000/£1 million Online Full

The best three-year fixed rates

Product Length of fix Rate(AER) Min/Max deposit How to open FSCS protection
Vanquis BankVanquis Bank 3 years 2.51% £1,000/£250,000 Online Full
Bank of CyprusBank of Cyprus 3 years 2.46% £1,000/£1 million Post Full

The best four-year fixed rates

Product Length of fix Rate(AER) Min/Max deposit How to open FSCS protection
Vanquis Bank*Vanquis Bank 4 years 2.61% £1,000/£250,000 Online Full
Bank of Baroda*Baroda Bank 4 years 2.6% £500/£200,000 Online Full

The best five-year fixed rates

Product Length of fix Rate(AER) Min/Max deposit How to open FSCS protection
Secure Trust BankSecure Trust Bank 5 years 3.03% £1,000/£1 million Online Full
Vanquis Bank*Vanquis Bank 5 years 3.02% £1,000/£250,000 Online Full

The best seven-year fixed rates

Product Length of fix Rate(AER) Min/Max deposit How to open FSCS protection
Secure Trust BankSecure Trust Bank 7 years 3.11% £1,000/£1 million Online Full
First SaveFirst Save 7 years 3.1% £1,000/£2 million Online Full

The Savings Calculator

This calculator allows you to calculate how much interest you’ll be paid over the course of your fixed rate bond.

To get the best results out of the calculator, put in the value of your lump sum in the "How much do you already have?" field. Then, put in your interest rate into the next field. Most fixed-rate accounts don't allow you to put extra cash in monthly, so enter a zero in this field. Then, select the length of your fixed rate bond in the "How far ahead do you want to look?" field. Finally, choose your tax rate.

This calculator makes a few assumptions, the main one being that your interest will compound. In some cases, for example, if you have monthly or annual income paid out to a different account, that won't be the case, so the calculation in this case will be slightly out.

Savings Calculator

Pick your question...

How far ahead do you want to look? &
How much tax do you pay?

How much tax do you pay?

When do you need it by? &
How much tax do you pay?

Want to complain about your savings provider?

If your savings provider has given you the incorrect interest rate, or you haven't received your interest at all, then you don't have to suffer in silence. It's always worth trying to call your provider first to see if it can help, but if not...

Resolver Info Box

This tool helps you draft your complaint and manage it too. It’s totally free, and offered by a firm called Resolver, which we like so much we work with it to help people get complaints justice.

If the complaint isn't resolved, Resolver will automatically escalate it to the free Financial Ombudsman Service.

Q&A Savings

  • What’s the top fixed-rate savings account for joint savings?

  • How does inflation affect my savings?

  • What about when there's deflation?

  • What happens if my tax status changes during the fix?

  • A friend of mine said a fixed-rate savings account is a bond. I'm confused, what does she mean?