Regular or fixed? How to know which savings account is right for you
Recently, savers have enjoyed some of the best interest rates in years, but as the Bank of England continues cutting interest rates, this may be coming to an end.
This makes it crucial to move your cash to a place where it will be working as hard as possible for you.
The good news is you have several options when it comes to savings accounts, including fixed-rate and regular accounts.
What is a regular savings account?
Regular savings accounts require you to commit to paying in a set amount each month.
They tend to offer higher rates than easy access accounts or current accounts, but you do need to be disciplined or you won’t benefit from a higher interest rate.
The amount you pay in can range from £10 to £500, and you’ll typically need to make a minimum number of payments to receive the advertised interest rate.
This rate typically lasts only around a year, at the end of which you will receive the money you saved, plus the interest.
They’re ideal if you’re saving with a specific goal in mind, or if you know you can commit to setting aside a certain amount every month.
These accounts may not be suitable for you if you cannot save every month or if you need to make regular withdrawals. If that is the case, an easy access account might be a better option.
Rules will vary among different banks, so make sure you double-check before committing.
What is a fixed-rate savings account?
A fixed-rate savings account also guarantees a set rate over a fixed term, ranging from six months to five years.
Typically, interest will be paid annually but some accounts offer the option of receiving it quarterly or monthly.
The main difference between fixed-rate bonds and regular savings accounts is that you won’t be able to add any money into a fixed-rate account after you open it and deposit the initial amount.
These accounts are helpful if you have a lump sum that you’re not likely to need for a set period of time.
Inflation is running at around 2.3 per cent and the Bank of England is cutting interest rates, which means the rates on savings accounts will likely decrease over the coming months.
So if there’s an amount you can handle parting with for six months, a year, two years, three years or five years, you may want to consider a fixed account. But if you think there’s a chance you might need it, opt for an easy access account instead, as you’ll pay a fine for withdrawing money and you’re unlikely to benefit from the full interest rate.
Can I hold both?
The good news is, yes, you can hold both. You can even hold multiple of the same type of savings account with different banks, benefitting from top rates across the board.
Just make sure you don’t over-commit and that you won’t need access to the money, as withdrawals from both types of accounts will come with hefty penalties.