Fixed rate savings returns top 6% for the first time since 2008
Head of Savings at Shawbrook, says leaving money sitting in a current account is the equivalent of throwing hundreds down the drain every year.
Nearly half of savers leave their savings languishing in current accounts despite the fact they could earn more than six times as much interest in a fixed rate bond.
The best one-year fixed rate savings accounts offer returns that are now higher than 6%, the first time they have breached this level since the financial crisis in November 2008. However, 46% of savers continue to leave their savings in current accounts, according to research carried out by Shawbrook Bank, with these accounts typically paying less than 1%.
Adam Thrower, Head of Savings at Shawbrook, says leaving money sitting in a current account is the equivalent of throwing hundreds down the drain every year. He said: "Allowing money to accumulate in a current account when there are numerous competitive savings accounts available makes little sense. Doing this might seem like the easy option, but people could be throwing away hundreds of pounds a year. Current accounts are not designed for savings, they typically pay low interest rates - or none at all - and merge the boundary between spending and savings which is generally not a great idea.”
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The best one-year fixed rate account available at the time of writing is from SmartSave and pays 6.01% interest before tax on a minimum deposit of £10,000. If you haven’t got that much to put away, then Investec’s one-year Fixed Rate Saver account pays 6% on a minimum deposit of £5,000, or Atom Bank’s one-year Fixed Saver account can be opened with just £50 and pays 5.95% before tax.
A saver with £20,000 to put away could earn £1,202 in interest over the year if they put this money into the SmartSave account, but just £200 if they left their money sitting in their current account paying 1%, meaning they’d risk missing out on more than £1,000 in interest.
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Emma Wall, head of savings at Hargreaves Lansdown said “Once you have savings to cover 3-6 months’ worth of essential expenses, you can consider tying up any additional cash for the period that’s right for you in return for more interest. At the moment, you’ll get the best rates on shorter-term fixes, but if you don’t need the money for a longer period, you may want to split it between different accounts, so if rates are much lower when a 1-year or 2-year account matures, you’re still getting a strong rate from your longer-term fixed deals.”
The best longer term fixed rate savings accounts include Cynergy Bank’s four-year Fixed Rate Bond, paying 5.75% on a minimum balance of £1,000, and SmartSave’s five-year Fixed Rate Saver paying 5.71% on a minimum £10,000 balance. Remember that you can’t usually make withdrawals from fixed rate accounts, so you’ll need to be comfortable leaving your money untouched for the whole fixed rate term.
Bear in mind too that savings rates are changing all the time, so it’s worth keeping an eye on savings websites such as SavingsChampion.co.uk if you want to see all the best rates currently available.