Do you need to FIX your savings? Experts say it could be worth another year

Savers looking for a good fixed account with a term of one year have seen interest rates fall before their eyes.

Accounts with maturities above 5.2 percent can still be found, but only a handful – and experts don’t expect them to last much longer.

Al Rayan Bank offers a one-year fixed rate account that pays 5.5 percent interest, Investec has a 5.3 percent account and SmartSave Bank has an account that pays 5.27 percent.

James Blower, founder of website Savings Guru, said: ‘We expect these will all be cut or withdrawn this week or next.’

As a result, savers could find themselves in a position where the best one-year fixed bond and the best easy-access accounts pay the same rate.

> Find the best annual interest rate using our savings tables

The gap between one-year fixed-rate accounts and easy-access accounts has narrowed since NS&I withdrew its best-ever one-year fixed-rate bonds, which delivered a 6.2 per cent yield.

If interest rates on one-year fixed accounts fall below 5.2 percent, they will be on par with the best, easy-to-access accounts.

Some savers may wonder whether there is any point in putting their money away at all.

But the most important thing savers should think about when making their decision is not where interest rates are now, but where they could be in twelve months’ time.

Is a savings account with a term of one year worth it?

James Blower explains: ‘On paper, there are only three one-year accounts that pay more than the best easy-access account of 5.20 per cent – so it doesn’t look like they’re worth it.

“But easy access accounts are variable and those rates can change at any time.

“A 5.5 percent rate locked in for one year may not look great compared to 5.20 percent with access now, but if that easy-to-access account pays 4 percent in January 2025, then it could potentially save a saver are who retained access, but did not. if we needed it, we could have lost significant interest.”

The advantage of fixed interest rates is that the rate is guaranteed: the bank has to pay you that rate regardless of where rates go, while that is not the case with easy access to rates. They can shorten these at any time with little or no notice.

Easy access rates will be affected when the base rate starts to drop, but it’s not clear when this will be.

Some economists predict spring 2024, but others suggest there won’t be any movement until the second half of next year – and even then it could only be a 0.25 percent reduction over the next 12 months.

Rachel Springall, financial expert at Moneyfacts, said: ‘While it may not have an immediate impact, providers can pass on a full rate increase, a smaller rate increase or nothing at all. When it comes to cuts, that can happen quite quickly, but it really depends on the provider.”

The entire fixed rate market is being hit by rate cuts, but longer-term fixed rates appear particularly vulnerable and some experts expect the best four- and five-year rates to be cut this week.

By tying up £30,000 over five years in the best five-year account, rather than leaving it in the most accessible account, you could be £1,212 better off – despite the fact that easy access currently pays more than a long-term solution.

Rachel Springall says: ‘The options for savings accounts paying 5 per cent or more are disappearing, so the only way savers can guarantee they will earn that kind of interest is by choosing a fixed deal.

‘Variable interest rates can change, but fixed bonds guarantee an interest payment over a specified period, such as a year or more.’

‘With savings rates falling, it is imperative that consumers take the time to review their existing accounts and ensure they are receiving competitive returns.

‘Now that the swap interest rate is clearly falling, more fixed savings contracts may be canceled, but there will be providers who want to offer an attractive return to finance their future loans.’