A complete guide to fixed term saving accounts
Feel like you can commit to locking your savings away and like the sound of higher interest rates? With plenty of different term lengths, a fixed term savings account can suit so many different savers based and their goals.
Wanting to lock your savings away while making sure your money works still hard for you? Fixed term accounts keep your savings secure for a set time while also giving you a reliable interest rate for the duration of your savings term. Here’s our rundown on everything you need to know about fixed term savings accounts, their advantages and drawbacks, and how they’re different from other savings accounts.
A fixed term savings account does exactly what it says on the tin; it secures your money in a savings account for a set time period. You can often find a variety of term lengths on a fixed term savings account, helping you choose the best suited to you. It is also usually the case that the interest rate offered is more favourable for longer terms, though this can vary.
Think of your fixed term savings account as a locked money box. You put your money in, and you promise not to open the box for a certain amount of time, say one year or five years. In return, the bank promises to add extra money to your box, in the form of interest. And because you’ve promised not to open the box, they’ll usually give you more interest than if you had a box you could open whenever you like. This is the main difference between a fixed term savings account and a standard easy access account.
Fixed term savings accounts work by you agreeing to keep your money in the account for a specific length of time, known as the ‘term’. In return, the bank will give you a fixed interest rate for that whole term. So, no matter what happens to other interest rates during that time, your rate will stay the same. At the end of the term, you can take out your money along with all the interest you’ve earned, or your bank may provide some options to reinvest your money.
When you agree to the term, you agree that you won’t be able to access your money before the end date. Or if there is flexibility with your savings account provider, there is often a penalty for accessing your money early, such as losing your preferable interest rate or having to pay an additional charge.
The interest in a fixed term savings account is worked out based on the amount of money you have in the account and the interest rate the bank sets. The bank will add the interest to your account, which will typically be either at the end of the term or monthly. Fixed term savings accounts are reliable because this interest rate is fixed, which means you can work out exactly how much interest you’ll earn during the term.
OakNorth pays interest when your fixed term savings account matures at the end of the term. Within our app, you can see how much interest you have accrued to date, as well as the amount you’ll be paid at maturity.
Because banks are committing to paying these interest rates to you, there is some risk traded for the stability of a guaranteed rate for the duration of your term. Banks sacrifice being able to change your rate for the reliability of having your money saved with them. Likewise, if interest rates go up, you don’t have the option of switching to a different provider before the end of your term, but you can rely on having a guaranteed interest rate for your savings.
Fixed term savings accounts are great for people who have some money that they know they won’t need for a while and can commit to having this locked away from them. Because you promise to keep your money in the account for the whole term, they’re not so good if you think you’ll need to take your money out early. So, they’re a great way to save for bigger goals, like buying a new car, going on a trip, or just building up a nice pot of money for a rainy day.
Equally, fixed term savings accounts can be a good option for those who often dip back into their savings and want this temptation taken away.
At OakNorth, we offer fixed term savings accounts with different term lengths to suit different goals. You can open a fixed term savings account that will lock your savings away from 6 months up to 60 months, and you can receive higher interest rates the longer you commit to leaving your savings with us. And remember, with a fixed term account, your rate won’t change during the term. So, you can choose the term that best fits when you’ll need to access your money.
Here is a glance at some of our fixed term savings accounts from 10 different lengths we offer:
We know that committing to a longer term often comes with higher rates, but we still want to reward our short-term savers. A 9-month account could be a great countdown to saving towards a new baby or if you want to start setting yourself a small savings challenge without committing to a full year.
A lot can happen in two years, so it pays to be thinking ahead, especially when you can lock in a favourable interest rate. A 24-month account could help to set you up for a dream holiday or even the countdown to wedding bells.
Thinking of where you may be in five years’ time can be hard to imagine, but you’ll know you’ll want your money to be in a strong place to support your wherever you’re heading. Saving in a longer, fixed term account like this could be great for your children and their education or your own retirement plans.
A fixed term savings account can be a powerful tool for reaching your savings goals. For example, if you know you’re going to need a chunk of money in a few years’ time, like for a house deposit or a big trip, you can put your money into a fixed term account and let the interest work its magic. Or, if you have some spare cash you don’t want to spend right away, you can lock it away in a fixed term account for a shorter time to grow your savings and stop yourself from dipping into them.
You should be certain that you won’t need to access your money before the end of the fixed term and that locking it away won’t put you in a worse financial situation. Otherwise, you could be hit with a large fine when you really need your money. Here is where an easy access savings account could be a better option.
Fixed term savings accounts have a few big advantages:
While fixed term savings accounts have their advantages, they also have some drawbacks:
A fixed term savings account is like a lockable money box, where you agree to keep your money inside for a set period. In return, you get a fixed interest rate, usually higher than other types of accounts.
An easy access savings account, on the other hand, is like a wallet. You can take money out whenever you want, but because the bank doesn’t know how long your money will be there, they usually give you a lower interest rate. So, the main difference is a trade-off between higher interest and the freedom to access your money whenever you need it.
Whether a fixed term savings account is better than an easy-access savings account really depends on what you need from your savings.
If you’re saving up for something special and you know you won’t need the money for a while, a fixed term account can help your savings grow faster. But, if you think you may need to dip into your savings from time to time, an easy access account might be better.