With the Bank of England Base Rate forecast to increase again on February 2, many may be questioning whether a fixed rate savings account is a good option to garner the best returns right now. Financial Journalist Martin Lewis addressed the query on The Money Show this evening.
Fixed rate savings accounts can add another layer of certainty to savings, as savers are able to lock in the rate offered at the time of opening the account.
This means the bank or building society cannot change the interest rate during the term of the bond, which works well for account holders hoping to save long-term.
However, while savings rates are typically influenced by the Bank of England Base Rate (currently 3.5 percent), many may be wondering if there is any point in opting into a fixed term account now if the Base Rate is likely to change again soon.
Mr Lewis said: “We’re likely to see UK Base Rates go up on February 2. Currently, people think it’ll go up between a quarter and half a percent. So, should you be locking money away now when interest rates are going to go up?” Before noting that “it’s not as simple as it seems”.
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Mr Lewis explained: “While easy access rates move with the Bank of England Base Rate – we’d expect to see those rise, fixed rates move with gilts or the long-term predictions of interest rates.
“Because things have calmed down since last September’s budget, long-term interest rates are now predicted to be lower.
“Actually, at the last Bank of England announcement, while it put rates up, they forecast future interest rates to be lower and we didn’t see any increase in fixed savings rates at all.
“You shouldn’t see it as a done deal that if the Bank of England puts rates up, fixes will go up. Therefore, I don’t think it’s such a big deal to lock away now.”
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Mr Lewis added: “You could wait, but what I would say especially if a fix is right for you and you’ve never fixed before and you’re an inactive saver who doesn’t normally do it, I would suggest now would be a good time to fix.”
There are a number of different fixed savings accounts people can opt into, ranging from one year to over four years.
According to Moneyfacts Best Buys, Habib Bank Zurich plc is offering the highest interest rate for one year fixed term accounts with an Annual Equivalent Rate (AER) of 4.33 percent.
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Monmouthshire Building Society takes the lead on fixed rate savings accounts of four or more years with an AER of 4.5 percent.
This account requires a minimum deposit of £1,000, interest is paid yearly, and withdrawals and early closures are not permitted.
The Martin Lewis Money Show Live airs on ITV on Tuesday at 8pm.