Skip to main content
  • rainbow over text: 'thank you NHS'
  • Register
  • Help
  • Contact us
  • Log out of your HL account

Why savers are looking to short fixed term products

We take a look at what savers can do to secure cash for the foreseeable future, but still keep some flexibility for the times when you might need it.

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.

Although it’s only been a few months, January seems a long time ago. The outlook for the UK was high due to the Boris bounce and the Bank of England (BoE) choosing to keep the base interest rate at 0.75%.

At the time, the majority of money on Active Savings was going into easy access products, with less than 14% going into fixed term savings products of under a year in length.

However a lot has changed since then and the world has become much tougher for savers. February saw uncertainty creep back into the market as the threat of coronavirus began to filter through. As the virus began to affect economies, central banks around the world started to slice their interest rates to provide some support.

The BoE announced two emergency cuts to the base interest rate in quick succession in March, bringing the rate to a historic low of 0.1%. At the same time they provided cheap funding to banks.

Whilst this helps borrowers, it’s bad news for savers. Many providers have either cut some of their savings rates already, or have announced they will do soon. Some high street banks have trimmed their instant access accounts to just 0.01%.

With the outlook proving less than certain for savings rates, many Active Savings clients have taken to short fixed term products.

The proportion of money going into fixed term products of a year or less in length has risen by 40% from January to April as clients balance their short and long-term needs.

This suggests that savers are balancing their short and long term needs by securing good returns on short-term fixes.

A simple strategy can help your savings work a lot harder.

Savvy savings strategies

Fixed term savings products typically provide a better rate than easy or instant access products. For example, the average 1 year fixed rate we receive is 0.96%, compared to just 0.39% for easy access. That’s more than double the interest.

Generally, the longer you fix for, the better rate you’ll receive. However, the trade-off is that you usually can’t access the money until the product matures, so you should only use money you don’t expect to need until then.

It’s important to keep three to six months’ worth of income in easy to access cash for life’s unexpected events. Savers could then consider accounts of different lengths depending on their needs.

Here’s an example of splitting a £10,000 savings pot equally between easy access, a 6 month fix, a 1 year fix and an 18 month fix.

This way some money remains easily accessible, and you’ll still have portions of it coming back at regular intervals. Opting for fixed term products means you’ll likely get a better overall rate than leaving the whole pot in an easy access account.

Laddering a £10,000 pot

The savings split shown above is used as an example and is not personal advice. How you divide your savings pot is up to you. There’s no one size fits all so the product terms and rates you pick should depend on your individual circumstances and attitude to risk.

Normally, to get competitive rates on all of these, you’d probably have to open accounts with different providers. That means going through different application forms, proving who you are and setting up security information with each. Then you’d have to keep track of it all.

You’re probably thinking this sounds great in theory, but isn’t worth the hassle in reality. That’s where Active Savings could help.

An easy way to boost your savings

Active Savings lets you pick and mix easy access and fixed term savings products from a range of banks and building societies, all through one online account. It cuts out the hassle involved when opening and managing savings products with multiple providers.

Once you’re set up with Active Savings you don’t have to fill in any further application forms when you want to select new products. And it’s easy to manage, allowing you to see all your savings alongside your other Hargreaves Lansdown investments within your online account.

There are great rates on offer with up to 1.15/1.14% (AER/Gross*) on easy access and 1.46/1.45% (EPR*) on a 6 month fix – well above the average. We currently have a selection of market-leading rates from our banking partners on a range of fixed term products.

This article isn't personal advice, but could help you make your own decisions so you can make more of your money. Remember inflation reduces the future spending power of money.

Discover Active Savings

Products available through Active Savings can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Instant access products allow immediate cash withdrawals, Active Savings offer easy access products where withdrawals usually take one working day.

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

Gross means the interest rate without any tax deducted. Interest is paid gross. You’re responsible for paying any tax due on interest that exceeds your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

Islamic banks offer an expected profit rate, rather than interest on their savings products, in order to comply with Sharia banking principles.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 with firm reference 751996 for the provision of payment services. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

What did you think of this article?


Editor’s choice: our weekly email

Sign up to receive the week’s top investment stories from Hargreaves Lansdown

Please correct the following errors before you continue:

    Existing client? Please log in to your account to automatically fill in the details below.

    Loading

    Your postcode ends:

    Not your postcode? Enter your full address.

    Loading

    Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.

    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.

    Editor's choice – our weekly email

    Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

    • Latest comment on economies and markets
    • Expert investment research
    • Financial planning tips
    Sign up

    Related articles

    Category: Investing and saving

    5 tips to navigate market storms

    We give you our top five investment tips to help you steer through this market storm.

    Nadeem Umar

    09 Apr 2020 5 min read

    Category: Investing and saving

    Invest like the best – how Peter Lynch beat the city

    Peter Lynch was a legendary fund manager. We look at his key principles, and how you can apply them to picking investments.

    Nadeem Umar

    26 May 2020 4 min read

    Category: Essentials

    How a balanced portfolio can help you weather the storm

    We take a look at the importance of rebalancing and how it can help you steer through the market storms.

    Nadeem Umar

    26 May 2020 min read

    Category: Investing and saving

    How to save for the unexpected

    We look at why everyone should have an emergency pot of cash, and how to get a £25 bonus towards starting yours.

    Ryan Kenny

    22 May 2020 4 min read