Best Fixed Rate Savings
The best fixed rate savings accounts earn interest at a set rate for a specified period of time. Also known as term accounts or bonds, fixed rate savings accounts offer some of the best rates on the market if you can afford to leave a substantial sum of money stored away for 6 months to 5 years. If you've received a financial windfall, such as a bonus at work or a large cash gift, the best fixed rate savings bond may be the best way to maximise the value of your investment.
The best fixed rate savings accounts are available from banks, building societies, or National Savings & Investments. In general, bonds are a secure and stable investment. NS&I bonds, in particular, are considered to be extremely stable because they are backed by the government. When the best savings bonds come on the market, they are typically issued for a limited period of time. In order to obtain the best online savings rate, you must act quickly when these high earning products become available.
Uses for Fixed Options
Before you invest in the best fixed rate savings accounts, consider your goals and the terms of the account. Fixed rate savings accounts are best suited to medium or long term goals, such as saving for a new automobile, a home deposit, a wedding or an elaborate holiday. Bonds may also be used as a financial investment to supplement a retirement pension. Because access to your funds will be restricted until the expiry date, you must be able to keep the cash put aside for the duration of the term.
Bonds are available in terms as short as 6 months, if you suspect that you may need access to your cash before the end of the year. A 6-month bond may not offer the best fixed rate savings option, but your cash will earn more in a fixed rate bond than if you simply left the money sitting in a current account. In general, the longer a bank, building society, NS&I or other financial institution has access to your money, the more likely you are to achieve the best interest rates.
When you purchase the best fixed rate savings bond, the account continues to earn interest at a fixed rate over its term. If you can open your account and then forget about the cash for one or more years, you'll find that you can accrue significant earnings. However, you must review the terms and conditions to make sure you are aware of the penalties for withdrawing your funds early. If an emergency occurs and you need cash quickly, you may lose the interest you've earned, and even a percentage of the principle.
Disadvantages of Fixed Accounts
Even the best fixed rate savings schemes have disadvantages. Once you've invested in a bond, you are committed to the account for the entire term. Fees will apply if you withdraw the cash early. If you fear that you may need access to the funds in the interim, consider a notice account or an instant access option. Notice savers require that you provide a certain amount of notice before withdrawing funds -- generally between 7 days and 120 days -- but the notice period is relatively short compared to the term of a bond.
After making the initial deposit, you may not add to the cash in the best fixed rate savings funds. If your objective is to increase the growth of your reserves through regular deposits, this option may not be ideal for you. Consider a regular saver, which allows you to make regular deposits. Regular savers impose quite a few restrictions, such as maintaining a minimum balance or making a minimum number of deposits each year. However, you'll find that you can earn a considerable sum of interest if you are able to adhere to these limitations.
Unlike Individual Savings Accounts, or ISAs, and Child Trust Funds, or CTFs, your earnings from bonds are generally subject to tax. Investors who are looking for a tax advantaged fund may be better off with a stocks and shares ISA, which grows through a combination of contributions, earned interest and dividends. Although investors must limit their contributions to a maximum yearly allowance, none of the earnings or bonuses from ISAs are subject to tax.
As you explore your saving and investment options, compare the potential earnings and features of the best fixed rate savings schemes to other financial instruments. As a medium to long term strategy, these funds can offer the returns you require to achieve your goals. For the most satisfactory results, combine short, medium and long term schemes in your portfolio to ensure that you can have flexible access to a percentage of your cash whilst your other investments grow.