Fixed Term Deposit Accounts & Fixed Rate Bonds
Put money away for a set period of time, to earn a guaranteed return
🙂 Fixed term savings could be a good choice if you are happy to lock your money away for 1 – 3 years, as they often pay the best interest rates; fixed rates tend to be higher than variable rates savings like Easy Access or Notice Accounts.
🙂 Fixed term accounts are a popular option for accumulating high interest on larger lump sum deposits.
🙂 You get a guaranteed return for an agreed time period (usually 1 to 3 years). So even if market rates fall, your fixed rate means you know exactly how much you will end up with, which is helpful if you’re saving for something specific. Generally, the longer the term, the better the return.
😥 But the trade off is your savings are locked in for that time. You can’t withdraw money without incurring a hefty penalty (loss of interest); and some providers don’t allow any withdrawals at all during the term.
Nor will you benefit from any rise in interest rates, because you can’t switch to a better deal; the longer you are locked in for, the greater the risk that other savings rates might rise.
🙁 Some fixed-rate savings require a large initial deposit, which could be a problem for new graduates.
🙁 Some allow only one lump sum investment, without the facility to top up during the term.
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Index-Linked Savings Account
Lock away money for a fixed term and get an interest rate that is linked to inflation
Aka Index-Linked Savings Certificates or Inflation-Linked Savings, this type of account tends to be available as limited offers only. While the Bank of England base rate is lower than inflation, you won’t find many providers offering Index-Linked Savings accounts.
🙁 As they are fixed term deposit accounts, you generally have no access to the money during that time period. If withdrawals are allowed, you are likely to pay a sizeable penalty.
🙂 The value of your savings will at least keep pace with inflation, but you can’t be sure of the exact sum you will have at the end of the fixed term.
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