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Savers are avoiding fixed terms. But should you?

We look at why now could be a good time to reconsider fixed term savings accounts. And more details on our offer on how you can get cashback on your savings. Terms apply.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The pandemic has changed the way we manage our finances in lots of ways. For our savings, it’s had two main impacts.

Firstly, as a nation, we’re saving a lot more. Lockdowns have reduced the opportunities to spend, and for lots of people this has meant increased savings. In the year before the first lockdown we saved a total of £56bn. In the year after, it rose to £182bn.

Household savings per month

Source: Bank of England, to 28 Feb 2021.

The second change is how we manage our cash. The vast majority of our savings is now going into instant and easy access accounts, and the proportion going into fixed terms is reducing. Given the high levels of uncertainty we’ve faced, that makes sense – instant and easy access accounts give you the flexibility to get your hands on your money whenever you need it.

It’s also sensible to keep our emergency savings in an account that’s easy to access, to cover life’s unexpected events. We think you should generally keep at least three to six months’ worth of expenses as an emergency fund, if you’re working. If you’re retired, it’s one to three years’ worth.

If the nation has been building emergency savings to improve their financial resilience, keeping it in instant or easy access accounts should come as no surprise.

Read more about how much cash you should hold

But it’s worth considering if we need all our money there. In return for the added flexibility, instant and easy access accounts offer the worst rates. Most big banks pay as little as 0.01% on their instant access accounts, as do some National Savings & Investment products.

Given that inflation (the rise in prices of lots of popular goods and services) is currently at 2.1%, the rate you get on your savings should be an important factor. If not, you’re consigning your hard-earned cash to whittle away in value over time.

Fixed terms can help dampen the effect.

In return for locking your money away for a set period, fixed terms usually offer a better rate than instant or easy access accounts.

You don’t need to lock your money away for long – you can do it from as little as a few months. Although big high street banks don’t currently offer you that choice. Usually the longer you fix for, the better the rate.

Another benefit of fixed terms is that the rate is fixed for the duration of the product. Instant and easy access accounts, on the other hand, offer variable rates that can change at any point. This usually only goes one way: downwards.

How a savings price war is changing the fixed term market

A key reason for most of our savings flooding into instant and easy access accounts, rather than fixed terms, is the difference in rates.

Back in March last year, on average you’d get an extra 0.58% by choosing a one-year fix rather than instant access. The difference shrunk to 0.16% in March of this year. For some, the loss of flexibility wasn’t worth the extra interest.

But recently a price war has been emerging in the fixed term market. While the best instant access rate has stayed at 0.50%, the best one-year fix has gone as high as 1.00%. Could now be the time to reconsider fixed terms?

A savvy way to manage your cash

Some people might want to keep access to their money instead of chasing a better rate. But a simple tactic can give you the best of both.

Consider opening fixed terms of different lengths. For example, three month, six month, one year and two year accounts.

That way you’ll have some of your cash coming back to you at different intervals. But you’ll also still be getting a better overall rate than if you kept it in an instant access account throughout. It’s important to find a balance that’s right for you.

This might sound like a lot of hassle, especially as big high street banks don’t offer short-term fixes (less than a year). Applying to new banks to get the accounts you need can be a pain, not to mention a nightmare to manage after you set them up all over the place. But it doesn’t have to be – Active Savings makes it easy.

Boost your savings without the hassle

Active Savings gives you access to lots of banks and building societies, all in one online account. You can choose easy access and fixed terms, ranging from just a few months up to five years. There’s no limit on the number of products you can have, so you can find a mix that’s right for you and manage it in one place.

Unlock great rates, including a market leading easy access product*. And you could get cashback – details below.

*Rates were checked against Moneyfacts on 01 July 2021 at 11.41am.


The best rates on Active Savings

Easy access

Up to
0.55% | 0.55%
(AER | Gross)

1 year

Up to
1.40% | 1.40%
(AER | Gross)

2 years

Up to
1.55% | 1.55%
(AER | Gross)

3 years

Up to
1.65% | 1.65%
(AER | Gross)

Easy access

Up to
0.55% | 0.55%
(AER | Gross)

1 year

Up to
1.40% | 1.40%
(AER | Gross)

3 years

Up to
1.65% | 1.65%
(AER | Gross)

Find out more

Please note the products above are some of our most popular, but more are available. Click the link above to see our full range. Products can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Easy access products pay a variable rate and fixed term products pay a fixed rate.

AER (Annual Equivalent Rate) shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products. Once you have opened a fixed term product the rate won't change, but rates on easy access products can vary.

Gross means the rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

Get an extra boost of £10 - £100 cashback as a thank you

Open an Active Savings account by 28 July, then add at least £10,000 by debit card and choose your savings product(s) within 60 days of opening your account to qualify for cashback. If your balance drops below your cash offer qualifying amount within 6 months, we may reclaim your cashback. Full terms are below.

Cashback

Get £10-£100 cashback

Open an Active Savings account by 28 July, then add at least £10,000 by debit card and choose your savings product(s) within 60 days of opening your account to qualify for cashback as a thank you. If your balance drops below your cash offer qualifying amount within 6 months we may reclaim your cashback. Terms below.

You pay in Your cashback
£10,000 - £19,999 £10
£20,000 - £29,999 £20
£30,000 - £49,999 £30
£50,000 - £79,999 £50
£80,000 or more £100

Discover Active Savings

This article isn’t personal advice. Please remember that inflation reduces the spending power of cash. Fixed term products usually don’t allow access to your money until they end.

High street banks offer instant access accounts, which allow immediate access to your money. Active Savings offers easy access and withdrawals usually take one working day.

AER (Annual Equivalent Rate) – AER shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products.

Gross – the interest rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

Expected profit rate (EPR) – Islamic banks offer an expected profit rate rather than interest on their savings products in order to comply with Sharia banking principles.


Active Savings Cashback Offer – what you need to know

1. This offer is available to anyone who opens a new Active Savings account between 23 June 2021 and 28 July 2021 inclusive (“the Offer Period”).

2. To qualify for the offer, you’ll need to fund your new account, with at least £10,000 by debit card, and to subsequently use this money to instruct us to add at least £10,000 to one or more savings products within that account. Both of these actions must be taken within 60 days of the opening of the account to qualify (“the Qualifying Period”). For the avoidance of doubt you can open an account with as little as £1 and still qualify for the offer, provided that your account is topped up to a balance of at least £10,000 and you use this money to instruct us to add at least £10,000 to one or more savings products. Both of these actions must be taken within 60 days of opening the account in order to qualify.

3. If you open an account within the Offer Period and also satisfy the criteria listed in clause 2, we will credit the cash hub in your account with a cash amount between £10 and £100, depending on the amount you add to one or more savings products. We will credit the cash amount within one month after your Qualifying Period. We’ll notify you by email once the cash amount has been added.

4. The value of the cash reward will be based on the total amount added to savings products within 60 days of the opening of the account. The value of the cash reward will also only be based on the amount added to your account by debit card during the Offer Period. The value of the cash reward will not be based upon any amounts added to savings products using cash held in a Fund and Share account.

5. The cash reward shall be determined in accordance with the tiers identified in the table accompanying these terms and conditions.

6. It is not possible to combine the value of saving products chosen in accounts with different client numbers for the purpose of this offer. The maximum amount of cash you can receive under this offer is £100.

7. We reserve the right to reclaim the cash reward if the overall balance of your Active Savings Account drops below your cash offer qualifying amount within 6 months of the date of the qualifying deposit. We will notify you if we intend to reclaim the cash reward, and will claim it within 7 working days.

8. We reserve the right to amend, extend or withdraw this offer if necessary, including for legal or regulatory reasons or otherwise. If the offer closes early, all qualifying applications received up until this time will still be accepted. Details of any such amendment, extension or withdrawal will be posted on our website at www.hl.co.uk/savings.

9. This offer is not available to anyone who already has an Active Savings account.

10. You must not be an employee of any Hargreaves Lansdown Group company or a member of any such employee’s immediate family or household.

11. This offer is limited to one payment of up to £100 per client.

12. This offer will be governed by English law and, in participating, you submit to the jurisdiction of the English courts.

13. References in these terms and conditions to “Hargreaves Lansdown”, “our”, “us” or “we” are to Hargreaves Lansdown Savings Limited (company number 08355960), authorised and regulated by the Financial Conduct Authority (FCA Register number 915119), whose registered office is at 1 College Square South, Anchor Road, Bristol, BS1 5HL. References to the “Hargreaves Lansdown Group” are to Hargreaves Lansdown plc (company number 02122142) and its subsidiaries from time to time.


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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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