In October 2008, the UK base rate was 5%. Within a few months, 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.
Best Buy Fixed Savings
What is a fixed rate?
Most savings accounts are variable - the rate can change both with the Bank of England's base rate and as providers change their competitive stance. It's important to regularly monitor your account's rate. If it plummets, ditch and switch.
Yet there are some alternatives to monitoring interest rates:
Fixed rate savings give a guaranteed rate for a set period, but you can't take your money out during that time.
Therefore, they're only suitable for those who are happy to lock cash away for the entire term. It's also very important to understand the longer you fix for, the more you are RISKING the fact that an unpredictable future could mean this becomes a bad choice. If interest rates were to increase rapidly, you would have lost the flexibility to ditch and switch to a better payer. Plus if the savings safety status of the institution changes, it's more difficult get your cash out.
Will I definitely get this rate?
Apply now and you should get the rate advertised. However, there's always a chance banks that cut the interest on new fixed-rate accounts will attempt to shove you onto a new, lower rate. Be very vigilant during the application procedure, and double-check the rate before moving cash in (maybe even give the bank a quick call).
How safe are your savings?
Bank collapse was once easy to dismiss, then the credit crunch and global market turmoil hit. After the calamities hitting Northern Rock, Bradford & Bingley, Icesave and Kaupthing, every sensible saver should ask themselves: "Is my money safe?"
The answer is simple. Provided your money is in a UK-regulated bank or building society account, it's protected under the Financial Services Compensation Scheme (FSCS).
Here's the golden rule:
£85,000 per person, per financial institution is guaranteed.
Sadly, this is the simple face of savings safety. The exact rules are more complex, involving how different banks are registered and what counts as a financial institution. Also, if you did need to claim compensation, that would likely mean you wouldn't have access to that cash for a few months. For full info, read the full Are Your Savings Safe? guide.
How to maximise safety
The techniques to adopt depend on the amount of cash you want to save.
Over £85,000. For those with bigger savings, in the unlikely event a bank or building society goes bust, don't put more than £85,000 in any one institution. Spread it around.
Very large amounts. Those with very large savings (a house sale or inheritance, for example) may need lots of accounts. Even if you've too much to stick to the £85,000 limit for each, the general rule of not having all your eggs in one basket still works.
Under £85,000. If you've less than £85,000, there's no problem in terms of protection. Yet if you were to have to claim compensation, this takes time, during which you wouldn't have access to your cash. Thus it's still worth considering spreading money across more than one institution.
For more info, see the How to get 100% safety section of the Savings Safety guide.
This guide and best buys
It's impossible to know which bank is in trouble. As well as the UK banks, we've seen great names of world banking like Goldman Sachs and Merrill Lynch hit trouble.
Therefore, the only solution for this site is that we'll report the top rates and explain any protection oddities. So far, world governments have reacted to protect their banks, and no savers have lost money. It's likely (though not certain) this will continue.
Best buys: Top fixed rate savings
The most competitive rates tend to be for shorter terms. This also allows you the flexibility from not being locked in for too long. The top instant access accounts, surprisingly are current accounts, and can pay up to 5%. For the top high interest bank accounts, and how to use them as savings, read the 5% savings loophole.
Another way to beat fixed rate accounts is by using a regular savings account. Regular savings accounts currently pay up to 6% AER, fixed for a year. These let you save up to £250-£500/month, though you can't put large lump sums in one. Also, the money only moves slowly into the account, affecting how much interest you'll earn. For the top accounts and how to use them best, read Regular Savings Accounts.
Or, if you're 65 or older, check out Pensioner Bonds. There's a one-year and a three-year bond available, paying 2.8% AER and 4% AER respectively. They launched on 15 January 2015. Full details, including how to apply, in the Pensioner Bonds guide.
WARNING! The rate on application should apply, yet these are unprecedented times. When the form arrives in the post, check the rate's the same before putting cash in. Always double-check the rate yourself before applying. All major updates go in the free weekly email.
The best one-year fixed rates
The best two-year fixed rates
The best three-year fixed rates
The best four-year fixed rates
The best five-year fixed rates
The best seven-year fixed rates
|Product||Length of fix||Rate(AER)||Min/Max Deposit||How to Open||FSCS Protection|
|First Save||7 years||3.1%||£1,000/£2 million||Online||Full|
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What about my existing savings?
If you've already got a savings account, what happens in this low base rate environment depends on whether it is fixed or variable. If you've got a fixed rate account, the rate will apply for the set period. However, any other accounts are likely to be variable, and this means the provider can chop the rate whenever it likes.
Always monitor your rate closely. Once you're told about a cut, check your own account and ditch 'n' switch if it's dropped.
Do you live off savings interest?
When using fixed rate savings, you won't usually get paid monthly interest, though a few accounts do offer this. Therefore many who rely on interest earned from savings as an income stream don't fix, even though they could get higher rates. There's a workaround, though.
Here's an example (ignoring tax for ease of explanation)...
A couple have £100,000, and can get 5% in a year-long fixed account and 3% in an instant access account. They'd like roughly £5,000 of interest from these savings to supplement their income.
To do this, they should put £95,000 in the fixed account, and £5,000 in the instant access. Then they should spend the instant access money over the year, knowing the £4,750 interest earned in the fixed account will make up for it. They'll effectively get the high rate and be spending the interest.
This way you can grab the higher fixed-rate accounts, but retain access to enough cash in the meantime. Remember though, if you might need to get at the whole lump within the fixed term, this trick won't help and fixed rates may not be for you.