What are fixed interest deposit accounts?

If you are keen to get saving and want to make the most of your money, fixed interest deposit accounts are a good place to start.

This type of account guarantees a set rate of interest for a specified period – for example, you might come across a two year ‘fixed interest’ or ‘fixed rate’ account, which simply means the interest you will receive on your savings is fixed for two years.

Unlike a variable rate, the benefits of a fixed interest rate on your savings is that you know precisely how much your cash will earn during the term of the deposit.

One point to bear in mind is that many (but not all) accounts will not permit savers to withdraw any of their funds during the fixed rate period, or may charge a penalty for doing so. Therefore, if you think you might need access to the money it’s probably wiser to opt for a short term or an easy access account depending on your needs.

On the other hand, if you are happy and able to lock your cash away and let it grow, a longer term fixed account could be ideal because the longer the term, the higher the interest rate tends to be.

Some savers prefer a medium term account, however, so they can move their money more easily should a better interest rate become available.

Fixed rate deposits usually pay interest annually, on the anniversary of when the account was opened. Some also offer a monthly interest option for savers with a large deposit who want to receive an income from their money. In those cases, the interest may be paid into another account so the saver can access it without touching their savings.

Two of the best fixed interest deposit accounts we found are the BM Savings Five Year Fixed Term Postal Bond, which pays 4.65 per cent gross AER and accepts deposits from £1 up to £10 million; and the Post Office Two Year Online Bond, which pays 3.96 per cent AER. Savers can deposit from £500 to £2 million. Both accounts have annual and monthly interest options.

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