While savings interest rates have been falling in recent weeks, fixed rate accounts are still paying returns of over six percent.
Latest reports from NatWest show more customers have been actively moving their money to higher-interest savings accounts, with fixed accounts specifically growing in popularity. The Bank reported that 15 percent of its customer deposits are now held in fixed-term accounts, which pay better interest rates, up from eight percent in the first quarter of the year.
The savings market in the UK has seen significant growth across various account types this year, with the average rate for easy access accounts remaining steady at 3.5 percent.
However, choosing between a fixed rate and an easy access savings account depends on a person’s savings goals, as it can have a significant impact on their savings potential.
Lucinda O’Brien, expert at money.co.uk savings accounts, said: “There are many different types of savings accounts in the market and each one works slightly different, which means each one is suitable for a range of savings goals.
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“If you’re looking to build a rainy day fund, you want your money to be as accessible as possible. Therefore, an instant or easy access account is a great option. These accounts are flexible and enable you to withdraw money whenever you want.”
Beehive Money’s Limited Issue Easy Access is offering an Annual Equivalent Rate (AER) of 5.19 percent from a £1,000 deposit.
For those with a smaller sum to invest, Cynergy Bank is offering an AER of 5.15 percent from a £1 minimum deposit.
Ms O’Brien said: “If you already have a lump sum of money saved but would like to keep it for a big occasion, such as a wedding or dream holiday, you might want to consider a fixed-term savings account.
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“However, whilst interest rates are high, this does come at a price, as you won’t be able to access your money for a set period of time. This varies from six months to five years, depending on the account.”
Currently, the top rate for a one-year account is 6.05 percent from Union Bank of India and can be opened with a minimum deposit of £1,000.
For a two-year account, the Union Bank of India offers a six percent AER, which can also be opened with £1,000.
Those with longer-term savings goals, such as putting money away for a house or retirement, could consider a lifetime ISA.
Ms O’Brien said: “A lifetime ISA has an allowance of £4,000 a year and the Government will give you a 25 percent bonus as a reward – however, there are some conditions, so make sure you read thoroughly before you commit to anything.”
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Lifetime ISA savers can only withdraw money if they’re buying their first home, are aged 60 or over, or are terminally ill and have less than 12 months to live.
If the money is removed for any other reason, savers will need to pay a penalty charge of 25 percent.
If using the money for a property, it must cost £450,000 or less and it must be bought at least 12 months after the first payment into the LISA is made.
People must also use a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them. People must also be buying with a mortgage.
Ms O’Brien said: “At present, AJ Bell’s Lifetime ISA can be opened with £500 or £25 per month, whereas Hargreaves Lansdown Lifetime ISA can be opened with £100 or £25 a month.”
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