Trying to secure a decent level of interest from your savings is something of a challenge these days, with rates at record lows and only ever seeming to fall further. It's even more difficult if you're looking for a real rate of return – i.e. a profit even after tax and inflation has been taken into account – but there are a few accounts that will offer the rate necessary to ensure that. You just need to be wiling to tie your money up…
Fixed rate accounts are the only ones that will offer the kind of rate necessary to see a real level of return. Case in point – the best easy access account, Britannia's Select Access Saver 5, pays 1.65%, while the best fixed rate bond (Fixed Rate Bond 7 Year Term from Secure Trust Bank) pays 3.52%. Considering a basic rate taxpayer will need to find an account that pays at least 1.88% to counter the effects of tax and inflation, it just shows that fixed rates will be the best – and currently the only – choice.
That's not to say you have to tie your money up for an extortionate length of time though. Seven years could well be too long for some, but even some shorter term bonds will get you above – or at least close to – the higher rates needed. Aldermore's Three Year Fixed Rate Account pays a competitive 2.70% or you can get 2.15% for tying your money up for two years with Nottingham, and even a one-year bond from Paragon Bank (its One Year Fixed Rate pays 1.60%) could still be highly attractive, and you can get your money back quickly too.
Then of course there are fixed rate ISAs, which counter the effects of tax at the source – simply because you're not paying any! Maximising your tax-free allowance should always be your first port of call when it comes to saving, and if you can get a decent rate by tying your money up in a fixed rate, all the better.
Of course, fixed bonds aren't for everyone, and should only be used if you can comfortably afford to lock that money away for the term. Although some accounts will offer early access this is usually subject to an interest penalty, negating any benefits of the higher rate, so you need to be absolutely certain you won't need to access your cash for the three, five or seven (or whatever you choose) years.
They shouldn't be used for an emergency fund either. Savings for this purpose should really be placed in an easy access account, or at a push a short-term notice version, because emergencies won't wait a few years for you to withdraw your cash. You might get a lower rate, but you'll have the peace of mind in knowing you've got the money there should you need it.
What fixed accounts are particularly good for, however, is building up a nest egg, or perhaps saving for that once-in-a-lifetime holiday or house deposit. You can lock your money away and see the value of it increase, and if you find an account that allows you to make additions – few and far between, granted, but there are some out there – you could benefit even more.
So, if you're looking to generate the best returns from your hard-earned savings, make sure to consider a fixed rate bond. The lack of access could well be worth it.
Compare fixed rate bonds in our best buy charts
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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