The Top Fixed Interest Savings Discussion Area

Molehusband

I'm interested in people's thoughts and recommendations for the best fixed interest accounts.  With BOE interests rates recently starting to increase we have to consider the desirability of long term fixed interest savings. Since withdrawals are usually not permitted before the end of the fixed period, such general interest rate rises may make us feel less inclined to go for a long term Fix. 
What are your thoughts?

Primrose

We're restricting ourselves to one year fixes at the moment as the interest rate future looks pretty unpredictable and being older, we don,t want to lock in for too long anyway.  Always keep enough in Easy Access  to cover potential emergencies. 

RG2015

Here are some useful links.

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fixedsavings

https://moneyfacts.co.uk/savings-accounts/

https://moneyfacts.co.uk/savings-accounts/1-year-fixed-rate-bonds/

On the Moneyfacts site, make sure you remove the tick on "show quick links first" and change the "investment amount" from £25,000, then press submit.

RG2015

I have my emergency cash in a Tesco Bank easy access accounts, currently earning 0.74%. Then I got to thinking, do I need as much here especially if I can earn twice as much for a one year fix.

I have moved some to a one year fix but any longer than that is too big a risk fir me, although I may be tempted if rates nudge up towards 2%.

One thought I recently had was to open a one year account every month, so I would have one maturing every month from February 2023.

refluxer

Yep - one year fixes max for me too at the moment, with the way interest rates seem to be heading this year.

Recognise Bank had a one year fixed rate account @ 1.6% today which is the highest one year rate for a long time, IIRC. I say 'had' because I think it was on offer for less than 24 hours - obviously a popular product and hopefully a sign that fixed rates are heading upwards.

Consumerist

Just a quick thought about longer-term fixes: As far as HMRC is concerned, interest is paid and taxed only in the year of maturity. Long fixes could potentially make a big hole in your Personal Savings Allowance for other savings which may be taxable in the same year.

With current derisory interest rates at the moment, this is not likely to be a problem for now but worth bearing in mind for the future.

Molehusband

Consumerist said:

Just a quick thought about longer-term fixes: As far as HMRC is concerned, interest is paid and taxed only in the year of maturity. Long fixes could potentially make a big hole in your Personal Savings Allowance for other savings which may be taxable in the same year.

That's an interesting point. I've never had a lengthy fixed rate account. But let's assume I open a fixed rate account for several years with an interest rate of say 2%. My belief is that interest is normally paid once a year ie added to balance. So in my example, around the end of first year I assume £200 interest is added to the balance making it £10200. Even though the interest is not paid out to me, I have always assumed HMRC will add the £200 to my interest received that year. Then further interest amounts added annually until end of term. But are you saying that for fixed rate accounts interest is only paid once (at end of term) which could be several years away?

Consumerist

Molehusband said:

Consumerist said:

Just a quick thought about longer-term fixes: As far as HMRC is concerned, interest is paid and taxed only in the year of maturity. Long fixes could potentially make a big hole in your Personal Savings Allowance for other savings which may be taxable in the same year.

That's an interesting point. I've never had a lengthy fixed rate account. But let's assume I open a fixed rate account for several years with an interest rate of say 2%. My belief is that interest is normally paid once a year ie added to balance. So in my example, around the end of first year I assume £200 interest is added to the balance making it £10200. Even though the interest is not paid out to me, I have always assumed HMRC will add the £200 to my interest received that year. Then further interest amounts added annually until end of term. But are you saying that for fixed rate accounts interest is only paid once (at end of term) which could be several years away?

The interest may be credited to your account on an annual basis BUT if you do not have access to the funds before maturity then HMRC taxes all the accrued interest in one go at maturity.

Edit

The general rule they follow is that interest is taxed only when it is actually paid.

EthicsGradient

*If* the interest is not available to you in any way before, then HMRC counts the interest as only being paid on maturity. But I've used several bonds with lengths over a year, and most pay interest into another account (savings or current) annually (or more often), so it's counted every year. I do currently have a 2 year bond which explicitly says in the Ts&Cs that interest is only available at maturity, so that will only be liable to tax at the end.

ZeroSum

Consumerist said:

Just a quick thought about longer-term fixes: As far as HMRC is concerned, interest is paid and taxed only in the year of maturity. Long fixes could potentially make a big hole in your Personal Savings Allowance for other savings which may be taxable in the same year.

With current derisory interest rates at the moment, this is not likely to be a problem for now but worth bearing in mind for the future.

I tend to only put money away into places that pay interest into an external account preferably monthly or annually

gwapenut

It's probably worth highlighting something which not everyone may be directly aware of.

As a general rule, fixed term non-ISA savings tend to lock your money in, and 99-100% of the time you will be denied access to it even if it's a life emergency. 

By law, fixed term ISA savings MUST allow you access to your money, for any reason. This can and usually will be with a penalty (although some Barclays fixed products have in the past allowed you to withdraw 10% a year like a "flexible" ISA, putting it back in before the end of the tax year).

The benefit of ISAs is not usually the tax saving these days, as savings providers tend to penalise you on the rates. The benefit is often the flexibility, allowing you to fund an emergency or even duck out of the deal if rates rise too much.

Penalties are sometimes not too punitive, and you can work out your effective interest rate if you bin the product after 1 year, 2 years,3 years etc. Often, even after penalties, these deals work out better than the competitor instant access or 1 year, 2 year fixed rates for the same period.