Everything you need to know about fixed-term savings accounts

Last updated: Thursday, 25 July 2024

We can sometimes be so focused on the more complex pieces of finance; we lose sight of the basics.

Here we explore everything worth knowing about fixed-term accounts, from the pros, the cons to the risks and how we should use them to our best advantage.

What is a fixed-term account?

Also sometimes called a fixed-term deposit or a fixed-term bond, a fixed-term savings account typically offers you a slightly higher interest rate than other accounts – provided you are prepared to invest your money for a set period. And the longer you can lock your money away, the higher your rate of return usually is.

Fixed-term savings accounts are mostly available for between one and five years, although they can sometimes be as short as one month or as long as 10 years.

What are the pros and cons of a fixed-term account?

First off, the interest rates tend to be higher than instant access and notice accounts, so will give you a better return on your savings.

The interest rates are set and will remain unchanged until the term ends and the account matures. This protects you against the fallout from financial events that may cause interest rates to drop and ensures you know exactly what rate of return to expect.

However, the downside is if interest rates soar, the fixed-term interest rate will stay the same, unlike an Instant Access account. Interest on fixed-term accounts is often paid annually, but some offer monthly interest payments.

If you are the sort of person who may be undisciplined with money, the fixed term prevents you from dipping into your cash. Though this also means your funds are untouchable in the case of a sudden event or emergency. You can also usually only pay in once when the term starts.

You should bear in mind that you will be unable to switch to a different provider or move your money to a different account during the life of the fixed term. Even if a provider allows you to withdraw your money early, you will usually have to pay a penalty fee.

Using fixed-term accounts for smarter saving

Fixed-term accounts are popular with people who want to grow their cash and can put a sum of money aside without the need to access it in the short term.

For example, you may have received money from an inheritance, or a house or business sale. Or you may be beginning to think about retirement and like an extra cash boost to complement your pension while enjoying added security.

Fixed-term accounts are also ideal if you are more risk-averse and want to guarantee your returns, rather than being at the sharp end of rapidly changing financial markets.

Depending on your needs or aims, you may want to reinvest your money when the fixed-term ends, beginning the cycle again to take advantage of the latest interest rates. Or you can spread your money across several fixed-term accounts that mature at different times, giving you ongoing options to manage your money as you see fit.

Explore: the ultimate guide to growing and safeguarding your savings.

Flagstone vs. the high street

Flagstone is the UK’s leading cash deposit platform, enabling you to access hundreds of savings accounts – including market-leading and exclusive rates – from a range of banks.

Our platform includes fixed-term accounts that offer higher interest rates than traditional high street banks. This means you can be confident your cash will receive the better growth.

A quick snapshot from 6 January 2023 reveals you could gain significant interest via Flagstone, instead of letting your cash sit idle in the high street. It also illustrates how fixed-term accounts compare with Instant Access.

Saving with Flagstone

Flagstone offers access to a wide range of fixed-term savings accounts with different terms. Whether you want to look forward to receiving extra interest each year to (re)invest or deposit your cash in a single account for the best possible return, we can help you achieve your financial goals.

You also receive £85k FSCS protection (£170k for joint accounts) for each eligible savings account used, giving extra peace of mind.

To see how we can help you grow your cash deposits and maximise your interest income, take a look at our range of fixed-term, notice and instant access accounts available via our cash deposit platform.

Open a Flagstone account today

_*Lloyds

_**Barclays