Written by Karen Bryan
If you want to get a reasonable rate of interest, but don’t want to tie up you money for too long in case interest rates do start to increase or you think you may need access to your cash in the not too distant future, then it’s worth looking at the options available on one year fixed rate accounts.
Make sure that you’ve used your full tax free annual Cash ISA limit of £5,640 before you put any money into a standard savings account.
The highest rate I could find for a one year fixed rate account was 3.6% with the Cahoot internet bank, a division of Santander. However, you need a hefty £25,000 minimum deposit to open this online account. No withdrawals or closure are allowed.
You can get 3.5% with Tesco Bank with a minimum deposit of £2,000. But again, this is an internet only account. There’s no access to your cash until the end of the term.
United National Bank offer 3.45% with a minimum deposit of £2,000. Their site states that there is a penalty for early withdrawals, but doesn’t give the details. This account can be opened online, by post or in the branch. I haven’t heard of this bank before, so I checked and it’s a member of the Financial Services Compensation Scheme (FSCS), which means that you get full cover for the first £85,000 of your savings.
The Allied Irish Bank (GB) Savings Direct 1 year fixed rate bonds offers a rate of 3.4% with a minimum investment of £1,000. The bond is available by phone or post. This is an advantage if you’re not happy about carrying out financial transactions online; as illustrated, some of top paying accounts are online only. Allied Irish also have the full £85,000 FSCS cover.
One year bonds seem to be the best bet at present; I had a quick look at the highest interest rates if you tie up your money for two years and the best rate was 3.8% with Investec, which required a minimum opening deposit of £25,000. Personally, I’m not sure that I’d lock in my money for an additional year to only get an extra 0.2% in interest
You must be absolutely positive that you won’t need access to your money during the life of the one year fixed rate bond, as in general, you can’t get you hands on the money until the account’s date of maturity. You can get around 3% on online instant access accounts, such as the Santander eSaver issue 5. You may decide it’s not worth tying up your savings for one year to get a maximum of another 0.6% interest, which will only be 0.48% extra if you pay income tax at the basic rate. However, you don’t know what rates of interest will be available 12 months from now.
Rates correct on 22 May 2012. Please double check the rates and terms and conditions before opening any of the accounts I’ve mentioned, as accounts can be withdrawn or interest rates changed within a short period of time.