One year, two years or longer: how long should you fix your savings for?

How long you fix your savings for depends entirely on your personal needs and what future plans you have for your finances. Since a fixed-term account limits your access to your funds for the duration of the bond, it’s important that you carefully consider the purpose of these savings.

For most savers a one- or two-year period is often the most attractive option. A one-year option offers more flexibility whereas a two-year option gives you more certainty. Longer term alternatives of three to five years can make sense if the interest rate is attractive but you risk missing better rates should they change later and or may face penalties or restrictions if you need access to your funds early.

How does a fixed rate bond work?

A fixed rate bond is different from a normal savings account in that it trades accessibility for consistent interest. They guarantee the same interest rate for the entire duration of their fixed term, unlike many savings accounts that offer variable rates that can fluctuate.

In addition to limiting your ability to withdraw your money for the duration of the term, they are also usually opened with one single lump sum payment and generally do not allow further deposits until the end of the term.

What happens to access during the fixed term?

Fixed rate bonds limit access to your funds for the duration of the term. You have the power to decide how long that term is, subject to your own personal needs and future plans for these savings.

Some providers will allow you to withdraw your money early, but for a fee. Otherwise, only exceptional personal circumstances will warrant access being allowed whilst the term is still running.

How should you compare terms and rates?

Firstly, check the AER (Annual Equivalent Rate) to understand the true compounded interest you’ll be earning across the length of your term. Then weigh your own future financial goals against each potential term length you could choose, so you have complete confidence that you will not need your money before the time is up.

It’s also beneficial to check if interest is paid monthly or annually to maximise compound growth on your savings, as well as checking if the minimum deposit limit is within your budget. Sometimes the providers offering the best rates will also require a higher lump sum investment to open their accounts.

How long should you fix your savings for?

The rate of interest, access terms and deposit limits are all important considerations when choosing the best term for your savings goals. Carefully consider what your plans are for the savings you wish to deposit, and whether you have enough separate funds set aside in case of more immediate financial needs like emergency expenses. Fixed rate accounts are an excellent way of maximising the interest you’ll earn on your savings compared to other more flexible types of accounts but be sure you’re confident in your decision before you commit.

A practical decision checklist

Before you choose a fixed rate bond, ask yourself these questions:

• How long do I want to fix my savings for?
• Which account offers the best balance of competitive interest rates and other attractive terms?
• Do I have enough of a lump sum saved to meet the minimum deposit limit?
• Is my current lump sum big enough to justify locking away for an extended period, could I save up more to benefit from greater compound interest in the future?

Frequently asked questions

What should I know before deciding about which fixed term bond suits me best?

Make sure you understand the purpose of the savings you are planning to deposit, so you can best fit them to the right fixed term bond. For example, if you are planning on a large purchase after a year and need to draw on your savings to do so, then a term of one year might be best. If you can afford to wait longer, you would benefit from greater compound interest the longer they stay fixed in the bond.

Can I access my money before the fixed term is up?

Many fixed-term accounts offer a brief window at the beginning of the term where a customer can potentially withdraw their funds before the term locks in. Once a fixed term is locked, some providers do offer access to withdrawals for a penalty payment and others may offer access following extraordinary personal circumstances (like an involuntary redundancy).

Why should I pick a fixed-term account over an easy access account?

It depends on the purpose of your savings. If you need your money at short notice for emergency expenses or an impending planned purchase, then an easy access account is normally best. However, if you can set some of your savings aside for an extended period then a fixed-term account will almost always give you the best value for money as they offer consistent interest rates which accumulate the best possible compound interest earnings the longer your money stays saved in the same fixed bond.

How should I compare accounts for one year, two years or longer?

Use an AER calculator to understand how much compound interest you would earn for each of the possible term lengths. Naturally, an account with only a one-year term would earn less than a two-year bond option. As a result, your personal plans for these funds will play a large part in dictating which term will best suit your needs.

Next steps

If it is time to review your savings, these Kent Reliance pages may help you compare your options:

View fixed rate bonds

View current interest rates

View all savings products

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