Savings Accounts: Fixed Rate Alternatives To Low-Earning Easy Access

• More than 60% of UK’s savings are locked in low-interest easy-access savings accounts
• The average UK saver is £1,000 better off than they were before the pandemic.
• Fixed-rate savings accounts provide much better rates than easy access.

The average UK saver is stashing more money into savings accounts than they were before the Covid pandemic.

A couple of reasons have been given for this trend.

To begin with, Britons have had extra savings because of lockdowns – particularly savings on travel costs, holidays, events and not being able to eat out, etc.

In addition, the uncertainty surrounding Covid has driven people to save more, keeping more of a buffer in case there are more disruptions in future.

According to data from analytics consultancy firm CACI analysed by Paragon Bank, the average UK saver approximately $1,000 better than they were before the pandemic. So, where is the best place to the keep this extra money?

Millions lose out by opting for low interest easy access accounts

Judging by the data most people seem to think low-interest easy-access savings accounts are the answer, but by taking this route, savers are missing out on thousands of pounds in interest payments.

Also, with interest rates starting to rise to combat inflation, fixed-rate savings accounts are a far better bet, providing you don’t need flexible access to your money.

The CACI savings data, which was captured from more than 30 banks and building societies, also reveals that the average savings account balance has risen to £12,145 in 2021 up from £11,141 in March 2021. At the same time, total savings have grown by approximately 8.3% since the start of the pandemic, rising to £978 billion from £903 billion.

The average easy access balance has grown by approximately £1,500 from £10,246 on March 2021 to £11,746.

The money stashed in these accounts is a total of £593 billion, suggesting that over 60% of UK’s savings is stored in them.

Another type of savings account that UK savers flocked to during the lockdown are regular savings accounts. Here, total balances have risen by approximately 38% from £11.8 billion up to £16.3 billion since the pandemic started.

A regular savings account allows a saver to stash away a fixed amount of money each month, though with a maximum or minimum limit on how much can be deposited each time.

A good example is the product offered by the Principality Buildings Society which pays 2.35% interest on its Learner Earner regular savings account. It limits monthly deposits to £250 but allows a maximum balance of £20,000.

Customers will also need to open the children’s Learner Earner in the child’s name.

Savings rates: easy access versus fixed rate deals

The Bank of England’s base rate is currently at an all-time low with saving rates being the hardest hit. Therefore whether you are seeking save just £1 or £1 million, it is important to make sure that you are getting the best interest on your savings.

Below we compare easy access and fixed rate accounts to help you find the best place to put your cash that suits your needs.

How Easy Access Savings Accounts Work

The main idea behind easy-access accounts is that you deposit cash into them, and they pay you interest on the money while it is in the account. You can withdraw the money you pay into an easy-access account any time.

However, the saving rates are usually lower than on fixed rate savings accounts, because you pay for the flexibility that comes with having to easily access your money. In addition, since the interests are always varying, it is important to check them on a regular basis to make sure you get every possible penny on interest on your savings.

Best Easy Access Saving Accounts

Best easy access savings accounts – Investment: £15,000 Type: Lump Sum
Cynergy Bank Online Easy Access Account (Issue 42)
AER	Account Type	Notice	Interest Paid
0.66%  Includes a bonus	Variable	None	Anniversary
Shawbrook Bank Easy Access (Issue 27)
AER	Account Type	Notice	Interest Paid
0.62%	Variable	None	Anniversary
Marcus by Goldman Sachs
AER	Account Type	Notice	Interest Paid
0.60%	Variable	None	Monthly
Tesco Bank Internet Saver
AER	Account Type	Notice	Interest Paid
0.60%	Variable	None	Monthly
Leeds Building Society Limited Issue Online Access Account (Issue 24)
AER	Account Type	Notice	Interest Paid
0.60%	Variable	None	On Maturity

The best easy-access account with the most competitive saving rates is the Cynergy Bank, paying 0.66% and savers can save as low as £1 to a maximum limit of £1 million.

Remember the money saved in all the accounts above is protected up to the first £85,000 per saver, per financial institution.

This implies that if you have more than £85,000, it is best to spread your savings across different banks just in case one goes bankrupt.

However, fixed-rate savings accounts also offer better interests if you are willing to lock away your cash for a certain period of time.

This means you cannot access your funds until the end of the term, other than in extenuating circumstances. In return, you get a better savings rate, which is guaranteed.

The idea behind this is that banks are certain that they will hold your cash for a certain period of time and in exchange, they offer the said interest rate. You should only lock away in a fixed-rate savings account the money you do not need immediately.

Savings rates offered on these accounts, also referred to as ‘fixed-rate bonds’, have slowly been reducing since the pandemic began just as other rates as mortgage rates.

If you suspect that the trend is likely to continue, then it would be advisable to go for a shorter fixed term, say one or two years, so that if the rates rise in future, you will not be locked in a low savings rate.

However, if you think savings rates are likely to fall in future, then a fixed-rate savings account would offer you the much-needed protection.

Best Fixed-rate Accounts

Best fixed-rate savings accounts – Investment: £25,000 Type: Lump Sum
Bank of London and The Middle East Premier Deposit Account
AER	Account Type	Term	Interest Paid
1.35%	Fixed	1-year bond	On maturity
Al Rayan Bank Fixed Term Deposit
AER	Account Type	Term	Interest Paid
1.55%  Expected rate	Fixed	18-month bond	Quarterly
Al Rayan Bank Fixed Term Deposit
AER	Account Type	Term	Interest Paid
1.76%  Expected rate	Fixed	24-month bond	Quarterly
Smart Save 3-Year Fixed Rate Saver
AER	Account Type	Term	Interest Paid
1.82%	Fixed	3-year bond	Anniversary
Gatehouse Bank 5-Year Fixed Term Green Saver
AER	Account Type	Term	Interest Paid
2.05%	Fixed	5-year bond	Anniversary

The leading one-year fixed savings rate deal, via Bank of London and The Middle East  bank, currently paying 1.35 per cent, although savers will need a minimum deposit of £5,000 to get started.

The Birmingham-based bank Al Rayan is Sharia-compliant, which means it cannot offer customers guaranteed interest. Instead it offers an expected profit rate from all accounts and offers the best two-year fixed savings rate at 1.76%.

Given that fixed-rate savings accounts offer high interest rates, you are encouraged to consider them if you are comfortable with stashing your money away for a fixed period of time.