Fixed-Rate Savings

As fixed-rate terms come to a close, a significant influx of funds is poised to enter the savings market. Failing to capitalize on this opportunity could result in a loss of over one billion pounds in interest.

It’s been approximately a year since savers allocated their funds to fixed-term savings. Between July and September 2022, a substantial £7.9 billion flowed into fixed-rate bonds. This figure skyrocketed to £30.8 billion from October to December. The majority of these investments were locked in for just one year, setting the stage for a substantial wave of matured investments, amounting to billions, to re-enter the savings market in the coming months.

How Much You Can Earn

So, how much interest can savers potentially earn from this scenario? In October of the previous year, the most attractive one-year fixed rates hovered around 4.45%. Since then, the Bank of England (BoE) has raised the base interest rate by an additional 2.25%. Remarkably, you can still find one-year fixed-rate options offering around 6%, despite the BoE recently putting a halt on further rate hikes.

However, it’s important to consider that the BoE’s decision to temper rate increases may lead to a stabilization of savings rates. If expectations for interest rates remain low, fixed savings rates may experience a decline. Nevertheless, if your fixed rate is due to mature in the next few months, there is no need for immediate concern.

Persistent inflation may keep the base interest rate elevated for an extended period, and providers eager to attract maturing funds in the coming months will likely engage in competitive offerings. Therefore, a drastic drop in savings rates in the near future is not anticipated. This means that even if you cannot secure the best rates at present, you could still potentially earn a better rate on your savings than you did last year.

Don’t Miss Out

However, there is a risk that many individuals may miss out on maximizing their returns. In numerous cases, when a fixed rate matures, the funds automatically transfer into a significantly less lucrative easy-access account, offering approximately 2% interest. Alternatively, the money may revert to the same current account from which it originated, resulting in even lower interest earnings.

If a substantial portion of these maturing funds ends up in these lower-rate options instead of the more lucrative top-fixed rates of around 6%, the collective loss in interest could exceed one billion pounds.

What You Can Do

So, what steps can you take to prevent missing out on potential returns? It may be worthwhile to check the maturity date of your fixed-term investment and take prompt action when it comes due. Currently, there are attractive fixed rates available, and you may consider locking in one of these options while they are still available. Keep in mind that fixed-rate products typically do not permit withdrawals until the term expires, and it’s important to consider how inflation may impact the spending power of your money.

If you prefer not to tie up your funds or need more time to decide, some of the best easy-access accounts offer interest rates above 5%. This rate remains higher than the top one-year fixed rates from the previous year, although it’s important to note that easy-access rates can fluctuate.

A Simple Approach

For a simplified approach to managing your savings, you might consider using a savings platform. These platforms enable you to access products from various banks and building societies through a single online account, allowing you to monitor all your savings in one location. When the time comes, you can easily switch to a different bank’s rate in just minutes, without the need to open a new account. Additionally, if you’re not ready to make an immediate decision, you can opt for an easy-access product to ensure your money continues to earn interest without the need for constant logins.

To ensure you are optimising your finances for this year and beyond, talk to one of our FCA authorised wealth managers by arranging a Discovery Call [Here]

This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.