Three quarters of people wouldn’t consider a fixed-rate savings account, which is why easy-access accounts dominate the market.
However, with the Bank of England cutting interest rates last week and more rate cuts expected this year, there’s huge value in being able to lock in a strong rate for months – or years.
Fixed-rate accounts mean locking away a portion of your savings for a specific period of time, which can range from a month to five years.
During this time your cash is tied up and you’ll receive a fixed interest rate – set at the outset, and added when it matures and you get your money back.
That’s because easy-access savings are set to gradually get less generous. But, if you lock in now, your fixed rate will still be guaranteed for the full length of the fix – no matter how much rates fall in the meantime.
So, why aren’t more people fixing?
Here are the most common reasons, what savers can do about it, and how to find competitive fixed-rate savings while you still can.
This article isn’t personal advice. If you’re not sure an action is right for you, ask for advice. Inflation reduces the future spending power of your money over time.
What are the main reasons some savers don’t fix?
Worried about tying your money up?
The most common reason for not choosing a fixed rate is that people feel uncomfortable tying the money up. This was mentioned by 40% of people who gave their reasons for not using fixed-rate savings.
Meanwhile 31% said they weren’t completely sure when they’d need their savings, so were erring on the side of caution.
This is often a decision driven by your emotions, which means you risk ending up with more easy-access cash than you need, for reasons you can’t articulate.
What can you do?
Laddering is a great strategy that can help you feel more comfortable with fixing.
This is where you use a number of different fixed accounts over different periods.
You might, for example, have an account fixed for one year, one for two years and one for three years.
After a year, the one-year account matures and if you don’t need the cash, you can consider fixing it for three years – secure in knowing that your next account will mature in a year’s time.
You can then keep doing this until you need some of your savings.
If you use a cash savings platform, like Active Savings, you can keep an eye on all these accounts in one place.
What if I need it for an emergency?
The next most common reason is that 38% of those who won’t fix their savings said they needed it for emergencies.
This makes perfect sense, because emergency savings should be in a competitive easy-access savings account, so you can get your hands on it as soon as you need it.
However, if this is your reasoning, you need to think about how much you actually need for emergencies.
A good guide is if you’re of working age, you should have enough cash to cover three to six months’ worth of essential spending. If you’re retired, it should be more like one to three years’ worth.
If you have more than this set aside for emergencies, you’re missing out on the benefits of a fixed rate.
What can you do?
You could consider separating your savings into chunks.
That way you can have cash for emergencies in an easy-access account, and cash for planned expenses further down the line, fixed for the periods that make the most sense for you.
Fixed-rate savings aren’t going to be right for everyone who has ruled them out. However, it’s worth considering what’s putting you off, and whether they could make sense for a portion of your savings.
If you do, you could be sitting on a highly competitive rate in the future, grateful for the fact you gave them a chance.
How to find great fixed-rate savings
An online savings platform, like Active Savings, means you can shop around to find great fixed rates all in one place, without spending lots of time shopping around yourself.
Active Savings brings some of the best fixed rates on the market from over 20 banking partners through one easy-to-use online account.
Just remember, fixed rates don’t normally let you take out your savings until the term ends – rates can be added and withdrawn at any time too.
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 Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown (company number 2122142).