Should I fix my savings?

Felicity King-Evans looks at whether now is a good time to fix your savings...

Felicity King-Evans: Many people stick their savings in an easy access account, meaning they can get at their money whenever they want.

But the accounts paying the higher interest rates tend to be more restrictive, like fixed rate bonds. If you want the best rates on the market, you’ll probably need an account like this. So what does it mean?

What is a fixed rate bond?

With a fixed rate bond, you agree to lock your money away for a specific period of time, usually between one and five years.

In return for that, the bank offers you a fixed rate during that time. Because you’re are give the security of locking your money away and not touching it, they’ll also tend to pay you a much higher rate then you could get, on say, an easy access account.

What if I need access to my money?

Some accounts simply won’t allow access to the money during the term of the bond whereas others will charge you a penalty, often as much as six months worth of interest.

It really only makes sense to save into a fixed rate bond if you definitely don’t need to get at your cash during time.

Should I fix my savings?

Whether or not you should fix your savings really depends on your personal circumstances.

It makes sense for everyone to have a fund of rainy day money that they can access in an emergency, and you shouldn’t lock that cash away – you may need it in a hurry.

But if you have some money you don’t need access to but do want to earn a decent return on, it makes sense to consider fixing.

The fixed rate gamble

One issue with fixing your savings is that you become locked into the rate. While it may be competitive when you sign up for it, are you confident it will still be such a good rate after a few years?

That’s one reason shorter-term bonds are so popular, although they tend to pay less than long-term fixed rate accounts.

Of course, if rates fall then you’re in an excellent position having fixed into much more competitive rate.

But no one really know where interest rates will be in four or five years time, so really only you can make this decision for your money.

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