Should you FIX your savings? Experts say it could still be worth it for a year

Savers looking to nab a good one-year fixed account have seen rates drop before their eyes.

One-year accounts paying north of 5.2 per cent can still be found, but only a handful – and experts don’t expect that these will be around for much longer.

Al Rayan Bank offers a one-year fixed-rate account which pays 5.5 per cent interest, Investec has a 5.3 per cent account and SmartSave Bank has an account paying 5.27 per cent.

James Blower, founder of website Savings Guru says: ‘We expect these will all be cut or pulled this week or next.’

As a result, savers could be in a position where the best one-year fixed bond and the best easy-access accounts pay the same rate.

> Find the best one-year fixed rates using our savings tables 

Plummeting: Fixed-rate savings accounts are falling across the board and soon they will meet the best easy-access account rate of 5.2%

The gap between one-year fixed-rate accounts and easy-access accounts has been narrowing since NS&I pulled its best ever one-year fixed-rate bonds which paid 6.2 per cent.

If rates on one-year fixed accounts fall below 5.2 per cent, that will put them in line with the best easy-access account. 

It may leave some savers asking if there is any point in locking away their cash at all. 

But the main thing for savers to think about when deciding is not where rates are now, but where they might be in 12 months.

Is a one-year fixed savings account worth it? 

James Blower explains: ‘On paper, there’s only three one-year accounts paying more than the best easy access account of 5.20 per cent – so it does look like they aren’t worth bothering with. 

‘But easy access accounts are variable and those rates can change at any time.

‘A 5.5 per cent rate fixed for one year might not look great compared to 5.20 per cent with access now, but if that easy-access account is paying 4 per cent come January 2025 then potentially a saver who kept access, but didn’t need it, could have lost out on significant interest.’

The edge that fixed rates have is that the rate is guaranteed – the bank has to pay you that rate regardless of where rates go, whereas they don’t for easy access rates. They can cut those at any time with little or no notice.

Easy access rates will be impacted when base rate starts to fall, but it’s not clear when this will be.

Some economists are predicting spring 2024, but others suggesting no movement until the second half of next year – and even then it may just be one 0.25 per cent reduction in the next 12 months.

Rachel Springall, finance expert at Moneyfacts, says: ‘Whilst it may not be an instantaneous impact, providers can pass on a full rate rise, a smaller rate rise, or nothing at all. When it comes to cuts, this can happen rather quickly, but it really depends on the provider.’

The whole fixed-rate market is being affected by rate cuts, but longer-term fixed-rates look particularly vulnerable and some experts expect the best four and five year rates to get cut this week.

By fixing £30,000 over five years in the best five year account, rather than leaving it in the best easy-access account, you could be £1,212 better off – despite the fact easy access currently pays more than a long-term fix.

Rachel Springall says: ‘The options of savings accounts that pay 5 per cent or more are disappearing, so the only way savers can guarantee on earning such a rate would be to pick a fixed deal. 

‘Variable rates can change, but fixed bonds guarantee an interest rate is paid over a set term, such as a year or more.’

‘As savings rates drop, it is imperative consumers take time to check their existing accounts and ensure they are being paid a competitive return. 

‘With falling swap rates evident, we may well see more fixed savings deals cut, but there will be some providers who want to offer an attractive return to fund their future lending.’